Sum Insured vs Sum Assured

What is Sum Insured?

Sum insured refers to the maximum amount that an insurance company will pay in the event of a claim under a general insurance policy. This is applicable in policies such as health, motor, and property insurance. 

Note that the sum insured is designed to cover the actual loss or damage that occurs, ensuring compensation to you based on the incurred damages.

Example: In a health insurance policy, if the sum insured is AED 1 million, the insurer will cover medical expenses up to that amount. However, if the actual treatment costs AED 800,000, you will only receive AED 800,000 as compensation.

Key Features of Sum Insured

• Reimbursement-Based: The insurer reimburses actual losses or damages up to the sum insured
• Flexibility: You can choose the sum insured based on their needs and risk exposure
• Annual Review: The sum insured can be adjusted annually to account for inflation or changes in asset values
• Applies to General Insurance: It is commonly found in health, motor, home, and travel insurance policies

How to Calculate Sum Insured?

When selecting a sum insured, consider the following —

• Value of the Insured Asset: Ensure the sum insured covers the replacement or repair cost of the asset
• Medical Costs: Choose an amount that covers potential medical expenses, factoring in emergency treatment
• Inflation: Ensure that the sum insured is adjusted for inflation to maintain adequate coverage over time
• Budget: Choose a sum insured for which you are able to pay the corresponding premiums

What is Sum Assured Meaning?

Sum assured is associated primarily with life insurance policies. It refers to the fixed amount that the insurer guarantees to pay you or your beneficiaries either upon death or at the policy’s maturity. 

Unlike the sum insured, the sum assured does not depend on the actual loss incurred — it is a predetermined and fixed amount agreed upon when the policy is purchased.

Example: In a life policy with a sum assured of AED 2 million, the insurer will pay this amount upon the policyholder’s death or upon the policy’s maturity, regardless of the actual expenses or liabilities incurred.

Key Features of Sum Assured

• Guaranteed Payout: The insurer guarantees a specific sum to be paid out to the beneficiaries
• Life Insurance Policies: It primarily applies to life insurance, including term plans, endowment policies, and guaranteed return policies
• Fixed Amount: The sum assured remains unchanged throughout the policy term
• No Dependency on Loss: Unlike the sum insured, it is not based on any actual loss but is a predetermined financial benefit

How to Calculate Sum Assured?

• Financial Needs of Dependents: Ensure the sum is sufficient to cover the financial responsibilities of your dependents such as child education, mortgage repayments, and daily expenses
• Age and Life Goals: Your sum assured should align with your long-term life goals, including retirement planning
• Affordability: The premium for the policy is dependent on the sum assured — choose a sum that provides adequate coverage without straining your budget

Difference Between Sum Ansured and Sum Issured

While both the terms may seem similar, they are used in different contexts and offer different kinds of coverage. 

Here’s a detailed comparison in terms of sum insured vs sum assured —

Choosing Between Sum Insured vs Sum Assured — Which One Fits Your Needs?

Both types of coverage and corresponding insurance categories are useful for different needs.

If you're looking to cover assets or expenses related to healthcare, property damage, or motor accidents, a sum insured policy is ideal. These policies help with reimbursement of actual loss or damage. 

The sum insured product is suitable for —

• Health Insurance: To cover medical costs and hospitalisation bills
• Motor Insurance: To cover vehicle damage or loss
• Property Insurance: To protect your home or valuable possessions

If you are looking for long-term financial security for yourself or your family, especially in the event of death or policy maturity, a sum assured product is the right choice. 

• Life Insurance: To secure the financial future of your dependents
• Retirement Planning: To provide financial stability in your later years
• Child Education and Marriage: To ensure funds are available for major life milestones

Frequently Asked Questions