Sum Assured: While buying a life insurance policy, the life cover or sum assured should be at least 10 times the annual income or 20 times the annual expenses.
New Delhi. If you have taken an insurance policy, then you must have seen that a word ‘Sum Assured’ appears repeatedly in it. If seen, the insurance policy is taken only for the sum assured. Sum assured means sum assured.
This is the value of the insurance cover, which is decided by the insurance company for the policyholder at the time of purchasing the insurance policy. It is also known as cover or coverage amount. Now the question arises, how much sum assured should a person take while taking life insurance?
Sunil Chawla, a SEBI licensed research analyst told bizzbuzz that in order to get a comprehensive and right life insurance coverage, one must know the terminologies of the insurance policy.
The most important aspect while buying a life insurance policy is to choose the adequate and right amount of sum assured. Life insurance plan is a financial assistance that takes care of the expenses of the insured’s family in case of the demise of the insured. Sum assured is an important term while buying life insurance. It determines the coverage level of the insurance policy.
Sum assured is cheaper in case of term insurance
Chawla said that maturity or death are 2 insured events in endowment policies, whereas in term insurance plans, only death is the insured event. The insurance company that sells and underwrites insurance policies guarantees to pay the sum assured to the insured in return for receiving regular premiums. In case of term insurance, the sum assured is the cheapest as it is multiple of the insurance premium paid.
At least 10 times of annual income or 20 times of annual expenses At the
time of buying a life insurance policy, the life cover or sum assured should be at least 10 times of annual income or 20 times of annual expenses. This means if the annual income of the insured is Rs 20 lakhs then the sum assured should be Rs 2 crores and the annual expenditure should be Rs 15 lakhs then the sum assured should be Rs 3 crores.
Different parameters need to be considered
However, ten times the annual income of the sum assured may not be sufficient for most people. In this case, one needs to analyze and different parameters should be considered while calculating the life cover or sum assured. Sum assured should be selected on the basis of number of dependents, type of lifestyle and children’s education, health expenses, retirement fund etc.
