Understand the Significance of Sum Assured in Term Insurance

In this fast-paced world, life insurance has become the best way to save yourself from the unfortunate event of demise. It’s like having a personal guardian angel to protect your loved ones in your absence. As we know, everyone is likely to have different needs.

Therefore, the insurance company lets policyholders determine the sum assured amount that would be payable to their nominee in the event of demise. To provide policyholders with satisfactory coverage, the insurer offers several components of a life insurance plan—for instance, a death benefit, premium, maturity, Etc.

So, knowing the concept of sum assured is essential to get the most out of your life insurance policy. Stay tuned and keep reading the pointers below to understand what is sum assured and its applicability.

Sum Assured: Meaning and Understanding

Sum assured is a pre-planned fixed amount that an insurance company provides policyholder nominee at the time of uncertain occurrence. When you buy term insurance you’ll get peace of mind that you’ve pre-planned the financial security for your family.

• However, the fixed amount will be decided over the policy tenure, as per the insurance life policy you signed up for.
• Even policyholders can choose to get plenty of maturity benefits under specific types of sum assured in life assurance.
• If you bought premium life insurance, the company will ensure you pay a sum assured amount as a death benefit to the nominee in case of unforeseen circumstances.

For instance, after three years of the COVID-19 pandemic, people are now well aware of life insurance’s importance. It drives prospective policyholders to buy higher sums insured under term insurance.

Differentiate Between the Sum Assured and the Sum Insured

To understand the difference between the sum assured and the sum insured check out the details below in Table-

What Should Be the Ideal Factors While Selecting Sum Assured?

It’s hard to predict unfortunate circumstances like an accident or serious medical problems, but it can surely cost you a lot of money. Therefore, several people prefer to buy life insurance to protect their families financially. However, the optimum sum assured will surely give you peace of mind. To get the most out of your life insurance, you may consider a few factors while buying sum assured-

Age

When it comes to determining your sum assured, your age will be the primary determinant that helps you to decide the extent of required coverage. Keep in mind that the younger you are, the additional sum assured you can secure.

There are two types of pros to doing this-

• If you buy life insurance early on, you’ll get a low premium for a higher sum assured.
• A younger person Investing with proper research in the correct sum assured allows you to retire early (in the case of endowment plans).

This way, age will be a beneficial factor in purchasing a higher sum assured because premiums are comparatively lower. However, your life insurance "term plan" will be raised by 6% to 8% annually. Please note that the sum assured is about providing policyholders with financial protection rather than premiums payable.

Income

According to the research of IRDAI, 37% of the citizens in the country have access to life insurance schemes. However, the crucial factor behind it is the lower income rate, which keeps around 400 million people in India without term insurance. That’s why your budget is an essential element to consider while estimating the sum assured.

Over a while, you can easily increase the sum assured in case your income boosts. When selecting sum assured as an inferior, coverage can affect you underinsured. Further, it’ll forfeit the fixed payable amount of life insurance, and your family may have to face uncertain financial circumstances in your demise.

Lifestyle

While deciding your sum assured, you may consider looking at your lifestyle needs and habits to cover all the potential contingencies.

Inflation

In this fast-paced world, the index of inflation fluctuates yearly, as do household, education, or medical expenses. To be fully accountable for any amends in your annual financial budget and the future pre-planned funding for your child’s education or retirement. You should invest in a life insurance policy while considering the inflation rate.

Medical History

While deciding your sum assured, you may first clear your doubt related to policy and share past medical records or any medical history of a particular disease with an insurer. It’ll allow you to choose a sum that’ll eventually cover the expenses of your treatment charges while also covering any uncertain circumstances of death.

Conclusion

After three years of the COVID-19 pandemic, life has changed, and the importance of life insurance worldwide. A good understanding of sum assured allows you to protect your family financially and helps you choose a suitable insurance plan based on your needs.