What Is The Sum Assured In ULIPs?

Written by : Knowledge Center Team

2025-11-11

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Sum assured is a term closely associated with insurance, particularly life insurance. The literal meaning of the term ‘sum assured’ is ‘promised sum’, or the amount that has been assured to you by the insurer. It is also called the benefit amount in insurance. However, the benefit amount or sum assured works differently in different policies.

In general, life insurance policies refer to the benefit amount as ‘sum insured’ and base it on the ‘principle of indemnity’. But life insurance plans do not work on the indemnity principle. Instead, the human life value concept forms the core of life insurance contracts, including unit-linked plans (ULIPs).

To understand the life insurance benefit amount, we should have a look at the principle behind this concept.

Key Takeaways

Sum assured is the guaranteed payout your family receives if you pass away during the policy term.
Life insurance is based on the value of human life, not just asset loss, making it an ideal choice for long-term protection.
ULIPs combine insurance with investment, making them ideal for future goals such as education or retirement.
ULIP death benefit can exceed the sum assured, offering the highest of fund value, sum assured, or 105% of premiums.
ULIPs offer tax benefits, including deductions under 80C and tax-free returns under Section 10(10D).

What is the Principle of Indemnity?

The principle of indemnity is a core concept in insurance that ensures fair compensation to the policyholder after a loss. It means the insurer is responsible for restoring you to the same financial position you were in before the incident occurred. This principle ensures you are reimbursed for your actual loss, preventing any profit from the insurance claim.

For example: Mohanalal is a businessman having an Electronics shop. He has insured his goods worth ₹10 lakhs. Part of the goods got damaged when a fire broke out in the warehouse. He claimed a full ₹10 lakhs as compensation. Upon examination, it was found that only goods worth ₹ 2 lakh were damaged. Now, ₹ 2 lakh will be provided to him.

What is Human Life Value?

It is not possible to estimate the financial loss to a family due to the death of the breadwinner. So, life insurance plans cannot follow the principle of indemnity verbatim. However, they still need to consider the limits and the other six principles.

Life insurance plans have the concept of ‘human life value’ or HLV in place of indemnity. You can calculate your HLV based on your current income. The life insurance companies base it on your current annual take-home income. This also means that your HLV keeps changing with your income.

Insurers adhere to a thumb rule of limiting maximum life cover for an individual to 10 to 20 times their annual take-home income.

What is Sum Assured?

Your total available life cover at any moment should remain within 20 times of your annual take-home income. How will insurers know when you have reached the limit?`

Every life insurance policy carries a ‘Sum assured ’ amount, which is usually payable as a death claim to your nominees. Sum assured is usually the most prominent number in the life insurance plan at the time of purchase.

For example, if you buy a term insurance cover of ₹1 crore at the age of 30, you pay an annual premium of ₹10,000. ₹1 crore here is your sum assured, which the insurer has promised (assured) to pay to your family in case of your death within the policy term.

Meaning, in case of your death within the policy term, the insurer will pay your family ₹1 crore as the death benefit. The policy ceases to exist after the claim is paid.

Sum Assured in ULIPs

Unit-linked Insurance Plans (ULIPs) bring the best of both worlds – insurance and investment in one product. ULIP plans are an excellent way to invest in essential long-term goals, such as a child’s education or marriage. The life insurance cover will ensure that your child can meet the goal despite your untimely demise.

Similar to term insurance plans, ULIPs also have a life cover associated with the plan. The life cover is the sum assured. But only a part of the death benefit. Death benefit works very differently in ULIPs.

Let’s consider the Promise4Growth Plus Plan by Canara HSBC Life Insurance to illustrate how sum assured works in various ways under the same plan.

Sum Assured vs Death Benefit in ULIPs

Under Promise4Growth Plus, the death benefit varies depending on the plan option chosen. The payout to your nominee can be higher than the sum assured alone.

Option 1 & 3: Life Option and Whole Life Option

These options offer life cover for a limited term or up to 99 years (in Whole Life). In case of your death during the policy term, your family receives the highest of:

105% of total premiums paid
Sum Assured (fixed at policy inception)
Fund value at the time of claim

Example: You're 30 years old and choose Promise4Growth Plus with:

Sum Assured: ₹ 20 lakhs
Annual Premium: ₹ 2 lakhs
Policy Term: 20 years
Investment Goal: ₹ 1 crore for the child’s future

If you survive the policy term:

You receive the maturity amount, expected around ₹ 1 crore (subject to market performance)

If you pass away in the 15th year:

Total premiums paid: ₹ 30 lakhs
Fund value: ₹ 60 lakhs
Death benefit: ₹ 60 lakhs (since fund value is highest)

If markets underperform and fund value is ₹ 28 lakhs:

Death benefit: ₹ 31.5 lakhs (105% of ₹ 30 lakhs premiums)

If death occurs in the 7th year:

Premiums paid: ₹ 14 lakhs
Fund value: ₹ 19 lakhs
Sum assured: ₹ 20 lakhs
Death benefit: ₹ 20 lakhs

Option 2: Life Option with Premium Funding Benefit

This variant ensures your long-term financial goal is not compromised even if you are no longer around. Here's how it works:

On your death, the plan pays your nominee the higher of:
1. Sum Assure
2. 105% of premiums paid
The policy continues, with Canara HSBC Life Insurance funding future premiums
The fund continues to grow, and your nominee receives the maturity value at the end of the policy term.

Example: If sum assured = ₹ 20 lakhs and you pass away in the 10th policy year:

Premiums paid: ₹ 20 lakhs
Death benefit: ₹ 21 lakhs (105% of premiums)
Future premiums are waived, but the insurer continues investing on your behalf.
At the end of 20 years, your family gets the full fund value, fulfilling your original goal.

Tax Exemption on ULIP Investments

In case you are still wondering, ‘Why should you invest in ULIP?’ know that every benefit payment discussed above is exempt from tax. The premiums you pay in the ULIPs help you save tax up to ₹1.5 lakhs under section 80C of the Income Tax Act.

Also, any payments you receive from the ULIP plan will be tax-free under section 10(10D). The only condition is that you keep your annual investment in the ULIP below 10% of the sum assured.

Conclusion

A ULIP is a path to financial freedom and long-term family security. With market-linked growth and a built-in safety net, your loved ones receive the highest of the sum assured, fund value, or 105 per cent of premiums paid. Do not wait for the perfect moment. Take charge today. Invest in a ULIP and build the future your family truly deserves.

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.

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