The world of insurance is not short of jargon!
However, it’s helpful to have some understanding of these phrases, especially when they directly impact the benefits you or your loved ones might receive.
One such term, that relates to all life insurance policies, is the “sum assured.”
What is the sum assured?
At its core, the sum assured is the guaranteed amount that an insurance company commits to pay out under certain conditions.
Think of it as a promise: if specific events occur, the insurer will provide the sum assured to the policyholder or their family.
Sum Assured in Life Insurance
For life insurance, the sum assured represents the amount that will be paid out to beneficiaries upon the death of the insured person, provided it occurs within the policy’s active term.
Sometimes called the death benefit.
Sum Assured in Critical Illness Cover
Under a critical illness policy, the sum assured is the amount paid out if the policyholder is diagnosed with one of the illnesses listed in the policy, provided it occurs within the policy’s term.
Sum assured or sum insured?
Both “sum assured” and “sum insured” are terms used in the insurance industry, but they are applied in different contexts and have distinct meanings.
Let’s clarify the difference:
Sum Assured
This term is primarily used in life insurance and critical illness insurance policies.
It refers to the guaranteed amount that the insurance company promises to pay to the beneficiaries upon the death of the insured person or at the maturity of the policy. It’s the amount you choose to be covered for when taking out the policy.
Sum Insured
This term is commonly used in general insurance policies, such as home, car, or health insurance.
It represents the maximum amount that an insurance company will pay for a specific loss or damage covered under the policy. In essence, it’s the total coverage amount or the maximum value of the policy.
Key Difference
The primary difference lies in the nature of the policies. While “sum assured” is about guaranteeing a specific amount to beneficiaries in life insurance or critical illness insurance, “sum insured” is about covering potential financial losses up to a certain limit in general insurance.
Calculating the sum assured
The ‘right’ level of life cover, or critical illness insurance, is different for each person. The basic idea is to provide some financial assistance to your family should you die.
To help you could think of two scenarios:
Mortgages and debts
How much money is needed to fully repay all mortgages and debts. This could include personal loans, credit cards, car finance etc.
Living costs
How much money would your family need to live on each month. This includes; food, travel, holidays, household bills, school fees, property costs etc.
If you’re unsure how to do this then seek advice from a financial adviser.
