The value of saving money for the future is in our culture for generations. It is one of the most important lessons of life. Investing money for your future ensures comfort and security, especially in moments of exigencies. In simpler words, investing is more like saving up for the rainy days. Early investment will give higher return rates. However, such investment products have risk associated with them. Hence, you should have a mixed portfolio to boost your investment strategy. Guaranteed Saving Plans are a great way to invest for your family as such plans offer a life cover along with guaranteed returns and/or benefits. Sum Assured is a part of a savings plan and hence, it is essential that you understand what is sum assured in a guaranteed savings plan and how does it work.
What is “Sum Assured” in a Guaranteed Savings Plan?
Sum assured is the total value of the savings insurance plan. Under circumstances, such as a death, the sum assured will be the amount that is paid by the insurance company to the nominees or beneficiaries of the policy.
The sum assured may vary from person to person. Generally speaking, the sum assured is usually not more than ten times the policyholder’s annual income. It can also be between twelve to fifteen times the policyholder’s annual expenses, including the loans taken by them.
Different Types of Sum Assured in a Guaranteed Savings Plan
1. Sum Assured on Death (H3 Tag)
The value of the Sum assured on death will vary according to the plan that you choose. However, it will be so chosen to be the highest of the following range of options as applied to your plan:
a) An amount that is equivalent to eleven times the annualised premium.
b) An amount that is equivalent to the guaranteed sum assured on maturity that is the sum assured.
c) The absolute amount that is to be paid upon death, which is also equivalent to the sum assured.
2. Accidental Death Benefit (ADB) Sum Assured
The Accidental Death Benefit (ADB) Sum Assured amount refers to the amount paid to the beneficiaries upon their death caused by accident. The amount that is the same as that of the Sum Assured on Death. This is especially beneficial for employees working in hazardous conditions or who are involved in such professions that has a risk of danger to their lives.
3. Paid-up Sum Assured on Death
The Paid-up Sum Assured on Death is the amount paid after all the premiums have been paid and upon the death of the policyholder. The amount is calculated as the Sum Assured on Death times the number of times the premium is paid, divided by the total number of payable premiums within the plan term.
4. Paid-up Sum Assured on Maturity
The Paid-up Sum Assured on Maturity is the amount paid at maturity of the guaranteed savings plan after all the premiums has been paid. This amount is the Guaranteed Sum Assured on Maturity multiplied by the number of times the premiums are paid, divided by the total number of payable premiums within the plan term.
5. Paid-up ADB Sum Assured
This amount is equal to the Accidental Death Benefit Sum Assured times the number of paid premiums and divided by the total number payable premiums within the insurance plan term.
6. Paid-up Guaranteed Loyalty
This amount is equal to the Guaranteed Loyalty Addition amount multiplied by the number of paid premiums and divided by the total number of payable premiums within the insurance plan term.
How is Sum Assured Calculated in a Guaranteed Savings Plan?
You may find it a little challenging when it comes to analyse your family’s financial need in the future. A Human Life Value (HLV) calculator can help you determine an estimated amount for your future needs.
Consider the below mentioned factors while calculating the sum assured:
e) Medical history
All you have to do is enter a few financial information such as current expenses, income, age and other necessary details and ensure that you keep inflation in to account while calculating the sum assured for your guaranteed savings plan.
Choose the right sum assured by keeping your family’s need in mind so that their future is financially safe even in your absence. If you find it difficult to estimate the sum assured that you should choose, consult an expert.
Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised to exercise their caution and not to rely on the contents of the article as conclusive in nature. Readers should research further or consult an expert in this regard.