Sum Assured

Sum assured is the fixed payout that a life insurance policy promises the nominee when the insured person dies during the policy term. The word 'assured' here is contractual language — it refers to the benefit amount the insurer commits to pay, subject to the policy wording. Do not confuse sum assured (a life-insurance term) with sum insured (the maximum reimbursement amount in a health or general-insurance indemnity policy).

The two are conceptually different: sum assured is a fixed lumpsum on a defined trigger, while sum insured is an annual reimbursement ceiling. In Indian term insurance, the sum assured is usually chosen as a multiple of the annual income of the earning family member — common thumb rules are 10x to 20x annual income, adjusted upwards if you have a home loan or young dependents. Worked example: if a 32-year-old earns ₹12 lakh per year, has a home loan of ₹40 lakh outstanding, and has two school-age children, a sensible sum assured is around ₹1.

5 crore to ₹2 crore. At the lower end, a ₹1. 5 crore term plan for a non-smoker at age 32 typically costs in the indicative range of ₹11,000 to ₹15,000 a year as level annual premium.

A common misconception is that buying a higher sum assured is always better. What matters is matching the sum assured to the liabilities and living expenses the family would face in your absence, not an aspirational round number. Another common misconception is that sum assured increases automatically with inflation.

It does not, unless the policy specifies an increasing-cover rider. If you bought a ₹50 lakh cover in 2015, it is still ₹50 lakh today even though the real purchasing power has shrunk meaningfully. Review the figure every few years and top up with an additional term plan rather than surrendering and buying fresh, because age-linked risk charges only go up.

Related: sum insured, human life value, term insurance.