Sum Assured Meaning

Sum Assured Meaning & Importance

Knowing your sum assured is key. It determines your loved ones financial safety, covering expenses, debts, and even future goals.

Written by : Knowledge Centre Team

2025-12-09

4218 Views

8 minutes read

Exit Pop Up

Live Life More Confidently

Get best insurance from our experts

Name is required Name should be Valid
Mobile Number is required Mobile Number should be Valid
DOB is required DOB should be Valid
Annual Income is required
Please tick to proceed further.

Thank you for your interest in our product. Our financial expert will connect with you shortly to help you choose the best plan.

Life insurance provides a financial safety net to help you take care of your loved ones in case of your unfortunate demise. If you are the primary breadwinner, your family depends on you financially for a living standard and a safe future.

When you buy a life insurance policy, the sum assured becomes that financial rock that will keep your family afloat and secure their future in your absence. This makes it crucial to understand the meaning of sum assured and how it works.

Key Takeaway

  • Sum assured is the guaranteed payout to a nominee if the policyholder passes away during the policy term, ensuring financial security

  • The ideal sum assured depends on income, lifestyle, and financial obligations, calculated using methods like Human Life Value (HLV)

  • Sum assured applies to life insurance with a fixed payout, while sum insured covers actual losses in non-life insurance like health or motor policies

  • An adequate sum assured helps families manage expenses, repay loans, and counter inflation, securing future needs like education and healthcare

  • Common mistakes include underestimating expenses, neglecting coverage updates, and choosing lower premiums over adequate protection

What is the Meaning of Sum Assured in a Life Insurance Policy?

Sum assured meaning, defined in the easiest way, is the minimum guaranteed benefit amount the insurer will pay to your nominee in the unfortunate event of your demise during the policy tenure. You can choose your life insurance sum assured amount at the time of buying the policy. Choosing the correct sum assured in insurance is important to ensure your family receives adequate financial protection and remains financially secure in your absence.

Along with the sum assured, you can also select the way that the amount is paid to your nominee or nominees. At the time of buying the policy, you can select the payout frequency as a lump sum payment in regular monthly income or a combination of both.

The sum assured of your policy has the most significant impact on your policy premium. It should keep up with your income and lifestyle. 

Ideally, you need to maintain a life insurance sum assured equal to 10 times your annual income. Otherwise, you can also buy a new term policy to increase the total life coverage sum assured and keep up with your income.

Start Saving Smart, Grow Wealth Faster

Please enter correct name Please enter the Full name
Please enter valid mobile number Please enter Mobile Number
Please enter valid email Please enter Email
Consent is required

Enter OTP

An OTP has been sent to your mobile number

Didn’t receive OTP?

Application Status

Name

Date of Birth

Plan Name

Status

Unclaimed Amount of the Policyholder as on

Name of the policy holder

Policy Holder Name

Policy No.

Policy Number

Address of the Policyholder as per records

Address

Unclaimed Amount

Unclaimed Amount
Error

Sorry ! No records Found

.  Please use this ID for all future communications regarding this concern.

Request Registered

Thank You for submitting the response, will get back with you.

Why is Sum Assured Vital for Policyholders?

Think of sum assured as a financial shield that protects your loved ones when you are not around. It ensures that your family does not face financial hardship in your absence.

Let us break it down with a simple example.

Imagine a family where the primary earner has a life insurance policy with a sum assured of ₹50 lakh. If something happens to them, this amount is paid to their family, allowing them to manage daily expenses, children’s education, and outstanding loans without financial stress.

Here is why sum assured is crucial for policyholders:

  • Financial Security: It guarantees a lump sum amount for your family, ensuring their financial well-being.
  • Debt Repayment: Outstanding loans such as home loans, personal loans, or car loans can be repaid without burdening your dependents.
  • Children’s Future: Education and other significant life goals of your children remain unaffected, even in your absence.
  • Living Expenses: Your family can maintain their lifestyle and manage household expenses smoothly.

Common Mistakes While Choosing Sum Assured

Selecting the right sum assured in insurance is a crucial decision, but many policyholders make errors that can impact their financial security.

Here are some common mistakes to avoid:

  • Overlooking Future Costs: Many individuals select a sum assured based on their present expenses, neglecting the impact of inflation, which will increase costs over time.
  • Not Reviewing the Policy Periodically: Life changes over time. Whether it is marriage, welcoming a child, or purchasing a home, these milestones require you to review and adjust your sum assured to ensure adequate financial protection.
  • Failing to Account for Debts: If you have outstanding loans, your sum assured should be sufficient to cover them; otherwise, your family may face financial difficulties in repayment.
  • Not Factoring in Dependents: The more dependents you have, the higher your sum assured should be to secure their long-term financial well-being.
  • Prioritising Lower Premiums Over Adequate Coverage: Opting for a lower sum assured to save on premiums might seem cost-effective but can leave you underinsured.
  • Relying Only on Employer Insurance: Employer-provided group insurance may offer some coverage, but it is often insufficient to meet your family's financial needs in the long run.
trivia-img

Did You Know?

Life insurance death benefits are not taxable to the beneficiary!

Source: Investopedia

Claim Settlement Ratio

Benefits of a Higher Sum Assured

Opting for a higher sum assured may require paying slightly higher premiums, but the benefits far outweigh the cost.

Here is why having a higher sum assured can be a smart financial move:

 

  • Protection Against Inflation: With the rising cost of living, the value of money decreases over time. A higher sum assured helps ensure that your family’s financial needs, such as daily expenses, education, and healthcare, are adequately met in the future, even as prices continue to rise.
  • Tax Savings: Life insurance not only provides financial security but also offers tax benefits. Under Section 80C of the Income Tax Act, the premiums paid for life insurance policies are eligible for tax deductions, reducing your taxable income. This makes opting for a higher sum assured a financially prudent decision.
  • Peace of Mind: Life insurance provides reassurance that your loved ones will be financially secure in your absence. With a sufficient sum assured, you can live life with confidence, knowing that your family’s future expenses, debts, and aspirations will be taken care of, allowing you to focus on the present without worry.

How to Calculate Your Sum Assured?

You can calculate the sum assured amount that you need by using Human Life Value (HLV). It helps you determine the ideal amount required for your family’s financial needs. There are two methods to calculate the sum assured using HLV.

MethodDescription / Formula
Income Replacement Based

In this method, whatever income your family needs for support is covered by a sum assured. 

Formula: Sum Assured = Annual Income × Years left until Retirement

Need-Based

In this method, the sum assured is calculated based on the family’s monthly expenses till the life expectancy of the spouse or any other dependent member in the family.

Formula: Sum Assured = (Annual family expenses × Number of years dependents need support) + Major future goals (children’s education/marriage) + Outstanding loans − Existing assets/investments

Factors to Be Considered While Calculating the Sum Assured

Sum assured is not a fixed number, and it will always vary from person to person depending on their future financial needs, current earnings, and outgoings.

While calculating the sum assured, consider the following factors:

  • Age: Your age will help you determine the coverage you need.

  • Income: Your income helps assess your living standard, and hence it is an essential factor in determining the sum assured.

  • Dependents: The sum assured depends on the total number of dependents. The higher the number of dependents, the higher the sum assured you need. 

  • Life and Lifestyle: Lifestyle habits such as drinking and smoking will push your premium up and affect your sum assured.

What is the Difference Between Sum Assured and Sum Insured?
 

ParameterSum InsuredSum Assured
ApplicabilityIt is applicable for non-life insurance plans such as home insurance, health insurance, motor insurance, etc.It is applicable to life insurance plans.
Policy natureThe reimbursement is only for the amount of loss or damage.A fixed, pre-decided amount is given to the nominee in case of a policyholder's death during the policy tenure.
CalculationIt is calculated as per the damages incurred by the policyholder.It is calculated based on the HLV.
BenefitsThere are no additional monetary benefits. The policy pays out only the actual amount of loss sufferedThe nominee is paid the monetary benefit.

How to Increase the Sum Assured as per Your Financial Needs?

 Here is a look at how to increase your sum assured:

  • Consider an Increasing Term Plan: This type of policy automatically increases your death benefit each year, counteracting inflation and ensuring your loved ones receive a sufficient payout regardless of when a claim occurs.
  • Review Your Coverage Regularly: Life milestones like marriage, children, or a mortgage increase your financial obligations. Schedule check-ins with your insurance provider to assess if your current sum assured remains adequate.
  • Explore Riders: Certain riders can be added to existing policies, boosting your coverage for specific needs.

Remember, a sufficient sum assured provides peace of mind, knowing your loved ones will be financially protected. By using the strategies above, you can ensure your life insurance continues to meet your evolving needs.

How Does the Sum Insured Work in a Health Insurance Policy?

There are two kinds of health risks in life:

  1. Temporary 
  2. Life-threatening

While temporary health hazards only require temporary medical attention, the life-threatening types require extensive care. Generally, the sum assured in a health insurance plan is paid as medical expenses to the policyholder.

There are two types of health insurance policies, they are:

  1. Mediclaim Health Insurance: Mediclaim is a sum-insured-based health insurance policy. Assume the policyholder is diagnosed with malaria and admitted to the hospital. The treatment cost is ₹ 80,000. They have a health insurance plan with a sum insured of ₹ 5 lakh. As a result, most of the treatment costs will be borne by the insurance company.

  2. Critical Health Insurance: Critical health insurance is a health plan with a sum assured. This means the policyholder will receive a lump sum benefit from the plan if a covered health event occurs. For example, if the policyholder buys a health insurance plan with coverage for critical illnesses like cancer, and the sum assured is ₹ 20 lakh, if they are diagnosed with cancer or any other critical illness covered in the plan, they will receive a sum assured of ₹ 20 lakh.

The world we live in is full of risks and uncertainties. There are various risks, such as loss of life, assets, health, etc. You cannot possibly prevent unwanted events from occurring, but you can safeguard your financial health from them.

Essential Insurance plans like term life and health insurance plans to safeguard you against common hazards in life. At the same time, you can also invest in ULIP plans to build wealth and meet long-term goals.

Before We Part!

Choosing the right sum assured is a crucial step in securing your loved one's financial well-being in your absence. By understanding the factors that influence your sum assured needs and utilising the above strategies, you can ensure your life insurance policy provides adequate protection as your life evolves.

Remember, a sufficient sum assured acts as a financial safety net, offering peace of mind and the knowledge that your family can manage financially even during challenging times. Don't hesitate to consult a financial advisor for personalised guidance on determining the ideal sum assured for your specific circumstances.

Glossary

  1. Beneficiary: The person designated to receive the payout (sum assured) from a life insurance policy in the event of the policyholder's death.
  2. Dependants: Individuals who rely on your income for financial support, such as spouses, children, or ageing parents.
  3. Human Life Value (HLV): A method used to estimate the financial value of a person's life based on their future income potential.
  4. Nominee: The person you appoint in a life insurance policy to receive the death benefit
glossary-img
Uncertain About Insurance

FAQs on What is Sum Assured

There's no one-size-fits-all answer. Consider your income, dependents, debts, lifestyle, and future goals. A good rule of thumb is 10-12 times your annual income, but financial advisors can help you calculate a more precise amount.

No! While affordability is important, prioritise adequate coverage for your dependents. Strike a balance between sufficient protection and a comfortable premium.

Research reputation, financial strength, claim settlement ratio, and policy features. Compare quotes from multiple insurers to find the best fit for your needs.

Not necessarily. Riders provide additional coverage for specific situations (e.g., child education). Choose riders that complement your overall financial plan.

Yes, buying life insurance online can be secure. Use reputable insurance companies with robust online security measures. However, consider the benefits of consulting a financial advisor for personalised guidance.

Disclaimer - This article is issued in the general public interest and meant for general information purposes only. The views expressed in this blog are solely those of the writer and do not necessarily reflect the official policy or position of Canara HSBC Life Insurance Company Limited or any affiliated entity. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the blog or the information, products, services, or related graphics contained in the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk. You should consult with a qualified professional regarding your specific circumstances before taking any action based on the content provided herein.

Recent Blogs

Public Provident Fund (PPF): Account, Features & Tax Benefits
20 Jan '26
1902 Views
10 minute read
Maximize your savings with PPF tax exemption. Discover how investing in a Public Provident Fund secures your future and reduces taxable income.
Read More
Saving Plan
How Can You Ensure a Regular Income for Your Family?
26 Dec '25
3215 Views
7 minute read
Regular income defines your family’s lifestyle and financial status. Know practical ways to create a steady income stream for your family using savings plans, investments, insurance payouts, and disciplined financial planning.
Read More
Saving Plan
NPS for NRIs: How to Save for Retirement from Abroad?
21 Dec '25
1552 Views
10 minute read
Learn how NRIs can invest in NPS to save for retirement and optimize their long-term retirement plans from abroad.
Read More
Saving Plan

Our Top-Selling Insurance Plans

We bring you a collection of popular Canara HSBC life insurance plans. Forget the dusty brochures and endless offline visits! Dive into the features of our top-selling online insurance plans and buy the one that meets your goals and requirements. You and your wallet will be thankful in the future as we brighten up your financial future with these plans.

Fixed Returns, Zero Risks & Worries

iSelect Guaranteed Future Plus
  • 4 plan options
  • Life cover + Guaranteed benefits
  • Accidental death benefit
  • Premium protection cover

Save, Dream, Plan. Live Peacefully

iSelect Guaranteed Future Plan
  • 4 plan options
  • Guaranteed Maturity Benefit
  • Premium Protection Cover
  • Tax Benefits