The sum assured indicates the payable amount that is guaranteed by an insurer in the occurrence of specific events as stated in an insurance policy.
In a typical personal accident policy for example, an insured person would received a payout for an injury such as a leg fracture or shoulder dislocation. It would be a fixed amount and doesn’t matter whether it is more than or less than medical expenses incurred.
This cash payout is the sum assured and is clearly stated in the terms and conditions.
The sum assured can sometimes be a flat payout cash amount, and sometimes be variable up to a specified limit.
For example, the sum assured for a mobility aid benefit in a personal accident insurance policy might not have a flat payout amount but only cover medical expenses up to a certain claim ceiling.
It is for this reason that the terms sum assured and coverage are confused. Some insurers even use them interchangeably.
Technically speaking, a sum assured is a guaranteed payout amount while coverage only states how much an insured person can claim for up to a specified limit. The claim amount for the latter would depend on conditions being met.
They are therefore distinctively different.
If anything, general coverage can only be described as sum insured at best.
This is also why sum assured is mostly associated with term life insurance policies.
Sum assured and life insurance
The basic premise of life insurance benefits is that upon the insured person’s demise, a cash payout would be made to the beneficiary.
For example, a basic life insurance plan might result in a surviving spouse receiving a $100,000 benefit payout. This $100,000 is not a reimbursement of expenses, but a cash payout to the beneficiary. The $100,000 is the sum assured.
The decision criteria for people to choose which insurer to go with and which tier of plans to purchase weighs heavily on the sum assured.
The higher the sum assured desired, the premiums understandably rise with it. In the same sense, the longer the term requested, the higher the premiums too.
There is a diverse set of life insurance products offered by the various insurance companies.
Some come with disability benefits, some incorporate cash value features, some even have riders that provide coverage for accidents and critical illnesses to stack on top of basic plans.
The huge assortment of selections choices and customization of life insurance polices has created products with more and more confusing sum assured.
In modern insurance marketing, sum assure is no longer a fixed amount that would be a disburse to a beneficiary upon the occurrence of an event such as death.
The sum assured of decreasing term coverage products would have sum assured that would reduce over time, eventually going to zero.
Conversely increasing term insurance plans would have sum assured that grows over time.
Policies with changing sum assured usually take the assured amount at the start of the policy year in which the insured individual died to determine the payout amount.
