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Sum Insured vs Sum Assured: Understanding the Difference



Sum insured applies to general insurance and covers actual losses, whereas sum assured is used in life insurance and provides a fixed benefit to the nominee. While both represent the maximum amount an insurer will pay in case of a claim, they apply to different types of insurance policies. Understanding the difference between sum insured vs sum assured in insurance is crucial, as it remains one of the commonly misunderstood concepts among insurance buyers. Knowing this difference ensures that you select the appropriate coverage for your needs, whether it’s protecting assets or securing your family’s financial future.

What is a Sum Insured?

Sum insured is the maximum amount an insurance company agrees to pay in case of a claim under general insurance policies. It applies to:
 

  • Health Insurance (hospitalization and medical bills)

  • Motor Insurance (vehicle damage or loss)

  • Home Insurance (property or content damage)

  • Travel Insurance (medical or travel-related losses)

The sum insured is fixed at the time of policy purchase and reflects the estimated value of the insured asset. It follows the principle of indemnity, meaning the insurer will compensate only for the actual financial loss, not exceeding the coverage amount.
 

For example:
 

If you have a health insurance policy with a sum insured of ₹10 lakhs and your hospital bill is ₹8 lakhs, the insurer will cover the full amount. But if your bill is ₹12 lakhs, the insurer will pay ₹10 lakhs, and you will bear the remaining ₹2 lakhs.
 

Characteristics of Sum Insured

Here are the key characteristics that define how sum insured works:

 

  • It represents the maximum amount the insurer will reimburse for repair, replacement, or medical costs, depending on the policy. 

  • It acts as a limit on the maximum amount the insurer will pay towards a claim. 

  • The insurer pays only for the actual loss, based on the terms of the policy, and not beyond the sum insured chosen at the time of buying the insurance.
     

What is a Sum Assured?

Sum assured is the guaranteed1 amount that an insurance company agrees to pay you or your nominee, either in case of a claimable event (such as the policyholder’s death) or at the end of the policy term. This concept is primarily used in:

 

It is a fixed value chosen at the time of purchasing the policy and remains unchanged throughout the policy tenure. The premiums you pay are based on this sum assured. Once the sum assured is paid out, either on maturity or death, the policy terminates.
 

For example:

If you purchase a life insurance policy with a sum assured of ₹15 lakhs and pass away during the policy term, your nominee will receive ₹15 lakhs as the death benefit.
 

Moreover, these plans often offer flexible premium payment options, tax benefits under Sections 80C and 10(10D), and the ability to enhance coverage through riders.
 

Characteristics of Sum Assured

Here are the key characteristics that define how sum assured works:

  • It provides a fixed payout to the policyholder or nominee.

  • Applicable to life insurance and endowment plans.

  • The sum assured remains unchanged throughout the policy term, unless modified as per the policy terms.

It is the guaranteed1 amount paid either on the policyholder’s death or on maturity, ensuring financial security for the family.

Difference Between the Sum Insured and Sum Assured

The table below highlights the difference between basic sum insured and sum assured:

 

Basis

Sum Insured

Sum Assured

Applicability of policy

Applicable for non-life insurance plans such as home insurance, motor insurance, health insurance, etc.

Applicable for life insurance and guaranteed1 return insurance policies

Nature of policy

Based on the indemnity principle, it reimburses only the amount of loss or damage

Fixed amount, pre-determined by the insurer; paid in case of death during the tenure or policy maturity

Benefit

No monetary benefit is available, only reimbursement of the loss/damage amount

The monetary benefit is paid to the insured or nominee

Tax Implications 

Premiums for health insurance (under Section 80D) are tax-deductible.

Tax benefits2 on premiums under section 80C; tax-free proceeds (death/maturity) under Section 10(10D) (t&c apply)

Why is the Difference Between Sum Insured and Sum Assured Important?

Understanding the difference between sum insured vs sum assured is essential for making informed insurance decisions. Here's why it matters:
 

  • It may help choose the right policy based on your financial goals, asset protection or life coverage

  • Avoiding confusion at the time of claim helps determine the payout amount

  • Affects premium calculations, as each one is priced differently

  • Guides financial planning, ensuring adequate coverage for you and your family

  • Clarifies tax benefits, as different tax provisions apply to each type of insurance

How to Calculate the Sum Insured?

 

 

When choosing the basic sum insured for your policy, you should consider the following factors:

 

  • If you are insuring an asset, you should consider the asset's value so that your damage or loss is fully compensated. 
  •  In case you are insuring your health, you should opt for a sum that is sufficient to cover medical expenses in an emergency.
  •  If you are buying a family floater plan, you should take a sum insured that is sufficient to cover all dependents.
  • If you are insuring your life, you should consider your current income, expenses, outstanding financial liabilities, and upcoming major financial requirements.
  • Consider the impact of inflation in the long run when deciding your sum insured value.
  • Choose an affordable sum insured that fits your budget.
     

Example: If your family’s annual medical expenses could go up to ₹4-5 lakhs, a health insurance policy with a sum insured of ₹10 lakhs may offer suitable financial protection, especially against rising medical costs.
 

How to calculate the sum assured?


Choosing the right sum assured is extremely crucial for your life insurance policies. Consider the following factors to know the optimal sum assured amount:
 

  • Your sum assured should be sufficient to cover all your financial responsibilities, such as funding your child’s education or marriage, sustaining your family's living expenses, and more.

  • Your sum assured should be enough to financially secure all your dependents, such as your spouse, kids, parents, etc.

  • The sum assured in insurance should be adequate for your family to pay off the financial liabilities in your absence.

  • Your age is a key factor in determining your sum assured. If you are young, opt for a high cover due to longer financial obligations.

  • The sum assured in insurance should be affordable and aligned with your financial capacity.
     

Example: If your current income is ₹10 lakhs per year, and you want your family to be financially secure for the next 15 years, a sum assured of ₹1.5 crore (₹10,00,000 × 15) may be suitable to cover expenses, liabilities, and future goals.

Conclusion

 

It is important to understand the differences between these two insurance terminologies so that you may choose the right insurance amount as per your policy and needs. While sum insured applies to general insurance and covers actual losses, sum assured is used in life insurance and guarantees a fixed payout. Choose the optimal sum insured and sum assured as per your insurance policy for a secure future. Tata AIA Life online offers a  guaranteed1 return insurance plan that offers life cover, assured returns, tax benefits, unique riders, loan against policy and much more! To know more, get in touch with our insurance experts.

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Tata AIA Life Insurance

A joint venture between Tata Sons Pvt. Ltd. and AIA Group Ltd. (AIA),  Tata AIA Life Insurance  is one of the leading life insurance providers in India. We post everything you need to know about life insurance, tax savings and a variety of lateral topics such as savings and investments in this space. You can access and read a host of different blogs, articles and pages at the Tata AIA Life Insurance Knowledge Center or get in touch with us with any queries or questions!

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FAQs on Sum Insured vs Sum Assured

What is the main difference between sum insured and sum assured?

Sum insured covers actual financial loss under general insurance, while sum assured is a fixed benefit paid under life insurance policies on maturity or death.

Which types of insurance use sum insured and which use sum assured?

Sum insured is used in general insurance, like health, motor, or home insurance. Sum assured is applicable in life insurance policies such as term plans and guaranteed1 return plans.

Can a single policy have both sum insured and sum assured?

Yes, some comprehensive insurance plans, especially savings-linked life policies, may include both sum assured (for life cover) and sum insured (for riders like health or accidental cover).

Disclaimer
  • Insurance cover is available under the product.
  • The products are underwritten by Tata AIA Life Insurance Company Ltd.
  • The plans are not a guaranteed issuance plan and it will be subject to Company’s underwriting and acceptance.
  •  For more details on risk factors, terms and conditions please read sales brochure carefully before concluding a sale.
  • This blog is for information and illustrative purposes only and does not purport to any financial or investment services and do not offer or form part of any offer or recommendation. The information is not, and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.
  • Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document issued by the insurance company.
  • Every effort is made to ensure that all information contained in this podcast is accurate at the date of publication, however, the Tata AIA Life shall not have any liability for any damages of any kind (including but not limited to errors and omissions) whatsoever relating to this material.