‘Sum insured’ and ‘sum assured’ are among the many basic phrases a person primarily wants to grasp earlier than selecting a life insurance coverage plan. The 2 phrases are the idea on which a plan is evaluated.
Although a novice might interpret the 2 to imply the identical, the precise meanings are considerably totally different. Whereas sum assured refers back to the profit, sum insured is the reimbursement of insured loss.
Non-life insurance coverage insurance policies, comparable to motor, residence and well being, which work on the precept of indemnity supply an quantity known as sum insured.
Indemnity refers back to the compensation that insurer pays for any loss, injury, or harm. These insurance policies present protection just for the losses attributable to any injury that occurs to the insured asset.
For example, a person buys a medical health insurance coverage that gives a sum insured of ₹1 lakh. Now, in case of the insured individual’s hospitalisation, any invoice amounting to lower than ₹ 1 lakh will likely be totally paid by the insurance coverage firm.
Nevertheless, if the invoice quantity exceeds ₹1 lakh, then the insurer will likely be liable to pay solely ₹1 lakh and the rest must be borne by the policyholder.
The thought behind this idea is the compensation mustn’t result in a financial profit to the policyholder and solely the quantity that is the same as the precise loss suffered needs to be paid to him. This is the reason the quilt in non-life insurance coverage insurance policies is called the sum insured.
Sum assured is a pre-decided quantity that the insurance coverage firm pays to the policyholder when the insured occasion takes place.
For instance, while you purchase a life insurance coverage coverage, the insurer ensures to pay a sum assured to the nominee in case of the insured individual’s demise. It’s the sum assured that determines the quantity of premium payable by the policyholder to the insurer. Sometimes, life insurance coverage supply sum assured and non-life insurance coverage insurance policies sum insured.
(Sourced from Policybazaar.com)