Before selecting a life insurance policy, a person essentially should always fully understand the words “sum insured” and “sum assured.” A policy is assessed based on these two criteria. The sum assured and sum insured may appear to signify the same to a novice, but their actual meanings differ significantly.
For e.g., in health insurance, the sum assured is a predetermined amount agreed upon by the policyholder and the insurance provider. The sum insured is the maximum amount the health insurance provider covers for your medical bills.
Let us understand the difference in detail.
Sum insured
A sum insured is offered by non-life insurance policies that operate on the indemnity principle, such as auto, home, and health insurance. The reimbursement that insurance provides for any loss, damage, or harm is referred to as indemnity. These policies cover only damages resulting from damage to the insured asset.
For instance, a person purchases a health insurance policy for Rs. 1 lac insured value. Now, in the event that the insured individual requires hospitalisation, the insurance provider would cover the whole cost of any bills that are less than Rs. 1 lac. The insurer would only be required to pay up to Rs. 1 lac in such cases; any additional costs must be covered by the insured.
The rationale behind this concept is that only an amount that is proportionate to the real loss sustained should be paid to the policyholder and that the compensation should not result in a financial benefit to him. This explains why the sum insured in non-life insurance policies refers to the coverage.
Sum assured
When the covered event occurs, the insurance company pays the policyholder the sum promised, which is a predetermined sum. For instance, when you get a life insurance policy, the insurer promises to pay the nominee the sum assured in the event that the covered person passes away. The amount of premium that the policyholder must pay to the insurer is determined by the sum assured.
Let us further understand what is health insurance sum assured. It is the predetermined sum that the health insurance provider pays the policyholder in the event of an incident. In contrast to the sum insured, the sum assured is a monetary payment made to the insured at the conclusion of the insurance term.
Policies that provide both
Typically, non-life insurance policies and life insurance policies both provide a sum assured. Nowadays, insurance companies are starting to provide policies that, in addition to paying your medical expenditures, also provide you with a pre-defined benefit in the event of a predefined medical event. You can easily use a health insurance premium calculator to determine the premium amount for such policies.
Life and non-life insurance firms both provide these kinds of dual-benefit policies. A frequent illustration of this type is a critical illness policy that offers a one-time benefit in the event that the insured individual contracts any of the illnesses listed in the policy. A hospital cash policy, for instance, provides daily cash benefits up to a predetermined limit for the entire time the insured individual is in the hospital. Similar to medical benefit policies, surgical benefit policies grant the policyholder a predetermined sum assured in the event of surgery.
It is important to understand what is health insurance sum insured and sum assured before you decide to choose. There is a certain health insurance coverage sum assured in the majority of health insurance policies, including critical illness insurance. An amount assured is the benefit, whereas a sum insured is the payment for an insured loss.
Insurance is the subject matter of solicitation. For more details on benefits, exclusions, limitations, terms, and conditions, please read the sales brochure/policy wording carefully before concluding a sale.