Sum Insured Vs Assured

Posted on: Jun 6, 2025 | 3 mins | Written by: HDFC ERGO Team

Sum Insured Vs Assured

When you’re buying an insurance policy, two common terms you'll come across are sum insured and sum assured. Though they may sound similar, they represent very different concepts. Sum insured is the maximum limit up to which the insurance provider will cover your expenses, generally in health or general insurance policies. On the other hand, sum assured is a pre-determined amount that the insurance company promises to pay to the policyholder or their nominee in life insurance policies.

What is Sum Insured?

The sum insured refers to the maximum amount that the insurer will reimburse you for any losses or medical expenses within a policy year. It is mostly applicable to health, motor, travel and home insurance policies.

Key Points:

• It follows the principle of indemnity, that is, compensating for the loss, not profiting from it.

• It is generally used in non-life insurance plans.

• Claims can be made multiple times, but the total amount should not exceed the sum insured.

Example:

Suppose your health insurance policy has a sum insured of ₹5 lakhs. If you are hospitalised and the bill comes to ₹3 lakhs, your insurer will pay that amount. The remaining ₹2 lakhs can still be used for future claims within the same policy year.

This is where having the best medical insurance policy can help. Such policies often offer benefits like restoration of the sum insured or additional coverage for critical illness.

What is Sum Assured?

Sum assured is the fixed amount your nominee receives in case of your unfortunate demise during the policy term or upon the maturity of your policy. It is commonly used in life insurance policies.

Key Points:

• The amount is predetermined at the time of policy purchase.

• It does not change with actual expenses.

• It provides financial security to your loved ones.

Key Differences Between Sum Insured and Sum Assured

Feature	Sum Insured	Sum Assured
Applicable Insurance	General insurance (health, motor, etc.)	Life insurance
Nature	Indemnity-based (reimbursement of actual loss)	Benefit-based (fixed payout)
Claim Frequency	Multiple claims up to the insured amount	Single claim upon death or maturity
Premium Calculation	Based on risk factors and coverage extent	Based on age, health, lifestyle, and coverage
Purpose	To cover unforeseen expenses	To provide financial security to beneficiaries

Why is It Important to Understand The Difference?

Understanding the difference between Sum Insured and Sum Assured helps you:

• Select the right policy based on your needs

• Avoid confusion during claim settlement

• Ensure your dependents are adequately protected

When you are choosing the best medical insurance policy, focusing on the right sum insured ensures you are covered for high treatment costs without causing any financial strain.

How Much Sum Insured or Sum Assured Do You Need?

For health insurance (sum insured):

Your sum insured should be enough to cover:

• Hospitalisation costs

• Pre-and-post-hospitalisation expenses

• Critical illness treatments

• Rising medical inflation

A thumb rule is to go for a cover that is at least 50% of your annual income or ₹5- 10 lakhs for a small family in urban India.

For life insurance (sum assured):

To calculate the ideal sum assured, consider:

• Your family’s monthly expenses × 12 × number of years they’ll depend on you

• Outstanding loans

• Children’s education/marriage needs

Experts recommend a sum assured that’s 10-15 times your annual income.

Tips to Choose the Right Cover

For sum insured:

• Go for policies that offer features like room rent limit removal, cashless claims and pre-existing disease coverage.

• Check for no-claim bonus or restoration benefits.

For sum assured:

• Choose a term plan for maximum coverage at affordable premiums.

• Consider inflation while deciding the cover.

What Happens If You are Underinsured?

If your sum insured is too low:

• You will have to bear the excess hospital costs from your pocket.

• You may not be able to access the best treatment options.

If your sum assured is too low:

• Your family might face financial hardship in your absence.

• Future goals like higher education for children or home purchase may get compromised.

Conclusion

While sum insured and sum assured may sound similar, they serve very different purposes. Knowing the difference will help you plan better and secure yourself and your family effectively. Ensure you assess your current needs, financial goals and dependents’ requirements before finalising your insurance plan.

Disclaimer: The above information is for illustrative purposes only. For more details, please refer to the policy wordings and prospectus before concluding the sales.

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