Sum Insured vs Sum Assured: Know the Difference - financebrother

 Sum Assured vs Sum Insured big dilemma

In life insurance we use the term “Sum Assured” as the only risk here is death, which is certain but the time is not known. In the case of life insurance, either you die or alive so the insurance company is liable to pay the full Insurance benefit amount as mentioned in the policy documents.

Example: A person buys a Term life insurance of Sum Assured INR 10 million for 15 years. If a person dies in 15 years, the insurance company is liable to pay a full claim of INR 10 million.

In General insurance we use the term “Sum Insured” as there are so many causes of risk like (Accidents, Fire, Loss by theft etc.) which are not certain. Insurance is not for profit but only for the risk transfer on which the Insurance Company is liable to pay the claim only for the loss up to the limit mentioned in policy documents.

Example: A company buys fire insurance for its machinery of INR 10 million. If a fire occurs and a machine affects 50%, then the insurance company is liable to pay only 50% of the 10 million which is 5 million as a claim to the company, not the full 10 million.