Sum Assured – Meaning and how to calculate it

 Life encompasses several uncertainties. One of the most prominent and inevitable uncertainties of life is death. We often refer it to as a debt owed by every living being, hence no one can escape it. Having this in mind, it is important to provide for and prepare ahead of the unexpected.

In view of the above, life Insurance is an effective and reliable coverage to secure the financial future of your family and loved ones. However, when you secure a life insurance policy, you are most likely to come across the word “Sum Assured”. This article examines the meaning and calculation of Sum Assured.

What is Sum Assured?

The Collins English dictionary defines sum assured as: “the amount payable on the occurrence of an event insured against under a benefit policy, such as the death of the insured.”

In other words, the sum assured is an amount of money which they entitle a beneficiary to at the death of the benefactor. That is, an amount he derives from the life insurance policy of another, and receives in case of such person’s death. We also know the sum assured as the coverage or the cover of your insurance policy.

Furthermore, the Cambridge dictionary defines sum assured as a minimum amount that someone you have named in an insurance document will receive when you die.

 How Sum Assured Works?

We can regard this policy as a financial safety plan. This is because it provides for after-death insurance coverage. The general notion behind this policy is that they pay the amount of insurance money out when someone dies.

Consequently, in case of your demise, your family or loved ones will receive the death benefit. With this benefit,  they can manage and secure their various expenses.

Additionally, where the event of such an unfortunate demise is due to an accident, it entitles your family to 100 percent of the sum assured.

Also, in the case of a loan, at maturity, you can use the endowment policy to repay the loan; that is, if the borrower dies before maturity, the sum assured will repay the loan.

Generally, the sum assured is the amount of money an insurance policy guarantees to pay up before the addition of any other bonuses. Hence, Sum assured is the value of the insurance cover provided at the time of buying the insurance policy. Therefore, in the case of any eventuality, like death, the sum assured is the amount they pay to the beneficiary.

Basic Features of Sum Assured?

The following are the basic features that effects a sum assured policy:

  1. The sum assured depends on the income of the person. Typically here, they permit up to a maximum of   10 times of your annual income, as the sum assured.
  2. Where the Sum assured is computed in terms of expenses, there usually exists accountability. This is often of at least 12-15 times the annual expenses with debt obligations, such as a home loan.
  3. Any Sum assured ought to be more than 10 times the annual premium. They provide this under Section 80C of the applicable legislation.

How is the Sum assured Calculated?

There are numerous ways to calculate the sum assured for your life insurance policy. One of the most prominent methods is Human Life Value (HLV).

This method calculates the sum assured based on your current and future expenses, together with your present and future earnings, as well as your age.

In Group Life insurance, sum assured is calculated by multiplying the insured’s annual emolument by 3. While for Individual Life they calculate it based on the total premium contribution over the life span of the contract

However, making use of the Human Life Value calculation method isn’t difficult. U can find the calculators online to discover your HLV and select the right sum assured.


While there are now many types of life insurance plans available for every need, one of the constant features as mentioned above is the calculation of sum assured and premium. They exist in every policy, and getting the necessary knowledge about them is vital.

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