Although very close in meaning, the two are vastly different in an insurance policy. The sum assured to a policyholder is the benefit that is pre-defined and to be paid to the policyholder in the event of a claim.

Relevant to life insurance policies, the sum assured is decided while purchasing the insurance policy. The policy terminates once the assured sum has been paid.

On the other hand, the sum insured refers to the amount that covers the cost of repair or compensation upon the occurrence of the event insured against.

In general insurance policies, including health insurance, motor and home insurance, the amount of coverage is always the sum insured.

This amount involves an upper limit that is pre-set. Since determining an upper limit on material possessions is possible as it wouldn’t surpass the price of the material itself, a sum insured is easier to fix on properties than on one’s life.

The differences

An important difference between these two concepts is that in case of the sum assured, the pre-determined amount of money is paid totally regardless of the value of the damage at the time of claim, whereas a sum insured policy only guarantees the exact value of the damage. As health insurance is midway between life and damage insurance, depending on the policy, a sum assured or a sum insured is guaranteed. Mediclaim policy reimburses expenses incurred during hospitalisation. A critical illness plan offers a pre-defined sum when the insured is diagnosed with specified illness.

The writer was interned with BusinessLine