Difference Between Sum Assured and Sum Insured
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What is ‘Sum Insured’ in Health Insurance?
Health insurance falls under the category of general insurance. The sum insured in health insurance refers to the maximum amount the insurance company shall pay toward your claims in a policy year (subject to your claim being approved).
E.g. Suppose you have a health insurance plan with a sum insured of AED 50,000. You get hospitalized for an illness or injury and the medical bill is AED 64,000. The insurer pays the expenses up to a maximum of AED 50,000 and the balance of AED 14,000 has to be paid out of your pocket.
The Importance of Sum Insured in Health Insurance
The ‘sum insured’ in health insurance sets the upper limit to which you can make claims for your medical expenses during the policy period. If the amount is used partially against a claim, the balance is available for subsequent claims until the limit gets exhausted or the policy expires, whichever happens earlier.
Policyholders should carefully assess their medical history and healthcare needs before choosing the sum insured in health insurance. A lower sum insured may result in higher out-of-pocket expenses if the claims are higher during a particular year. On the other hand, a higher sum insured entails a higher premium outlay and increases your liability every year.
What is Sum Assured?
The premium payable by the policyholder to the insurance company depends on the sum assured. The premium is higher if you choose a higher sum assured on your life insurance plan.
Differences Between Sum Insured and Sum Assured
| Particulars | Sum Insured | Sum Assured |
|---|---|---|
| Applicability | General or Non-Life Insurance policies such as health, auto, home, fire, etc. | Life Insurance plans such as term, endowment, and whole life policy |
| Basis of Compensation | The principle of indemnity which specifies compensation for the exact loss or damage | A fixed amount is payable either as maturity benefits or death benefits |
| Pecuniary Benefits | There is no scope for profits as the policy merely compensates the insured for the loss suffered | There is no financial loss and the policyholder or his nominee receives a fixed sum |
Relationship Between the Sum Assured and the Insurance Premium
The insurance premium payable by policyholders on life insurance plans depends on several factors. One among them is the ‘life cover’ or the ‘sum assured’ amount. This amount represents the fixed benefits payable to a policyholder or the beneficiary.
The premium payable is proportional to the sum assured. The premium increases as you enhance the sum assured on your policy. The insurer charges a higher premium to provide a higher life insurance coverage.
How Sum Insured Affects the Premium Amount
The sum insured in health insurance refers to the maximum amount the insurer pays toward your medical claims in a year. A higher sum insured entails a higher risk to the insurer. The insurer invariably charges higher premiums to cover higher risks. The policyholder has to pay more to avail of higher benefits. The higher the sum insured, the higher the premium amount.
Things to Consider While Choosing the Sum Assured
Age
Youngsters in their 20s and 30s require a higher sum assured as they have longer earning years ahead of them
Income
Policyholders with higher incomes require higher coverage to compensate for the loss of their incomes due to untimely death
Liabilities
The sum assured must be sufficient to cover your financial liabilities and obligations such as home loan, children’s education, marriage, etc
Number of Dependents
You need a higher sum assured if you are the family’s sole breadwinner with many dependents
Standard of Living
The death benefits received by the policyholder’s family should support them to maintain their desired standard of living
Budget
A higher sum assured entails a higher premium burden every year. It is advisable to choose the sum assured amount so as not to upset your family's budget with a heavy premium
Factors That Will Help You Calculate to Buy the Right Sum Insured
If you are insuring an asset such as your home, office, vehicle, etc. you should ideally consider the value of that asset to cover the loss or damage
If you are buying health insurance, the sum insured must be sufficient to cover the cost of treating a medical emergency with timely access to good healthcare facilities
Policyholders should assess their current income, expenses, assets, loans, miscellaneous liabilities, and other financial needs that may arise in the future
The impact of inflation has to be factored in calculating the sum insured amount
The sum insured must provide optimal coverage for all of your requirements without imposing any financial burden
Frequently Asked Questions on Sum Insured vs Sum Assured
Does sum insured and sum assured mean the same thing in insurance?
No. There is a difference between these two terms. ‘Sum Insured’ refers to loss reimbursement and ‘Sum Assured’ refers to guaranteed or fixed benefits. While the sum insured applies to general insurance plans, the sum assured is a part of life insurance plans.
What is the difference between life insurance and general insurance?
Life insurance covers the risk of untimely death and provides fixed benefits to the family of the deceased policyholder. General (or non-life) insurance covers the risk of financial loss due to other factors such as illness, accident, theft, and natural & man-made calamities. General insurance provides compensation for such losses.
Can I increase the sum insured in my health insurance plan?
Yes. You can enhance the coverage of your health insurance policy by purchasing a couple of add-on covers. The base sum insured can be increased during renewal by paying a higher premium.
Disclaimer: The Health Insurance may have limitations, exclusions, and other terms and conditions that may affect coverage. It is important to carefully review the policy wording before making any decision.