Abstract

When you purchase a life insurance policy, you and the insurance company enter into a legally
binding contract that requires the insurer to pay a certain amount to a named beneficiary in the
case of your untimely demise. Your loved ones will be able to weather the financial storm in
your absence. But, because every family has different financial needs, the insurance company
will let you pick the amount that will be paid out to your beneficiary after your passing. A life
insurance policy has many parts, such as a death benefit, a maturity benefit, and riders.
Understanding the difference between this and other forms of insurance, as well as the
significance of the sum insured, is therefore crucial.

Introduction

Nowadays, health insurance is a must-have. You and your family can avoid a catastrophic
financial loss due to medical emergencies by purchasing enough health insurance coverage. It is
critical, however, to acquire health insurance only after carefully reviewing the policy's language
and provisions.

Knowing the ins and outs of insurance lingo ensures you make well-informed decisions and
make the most of your health insurance coverage. The term "sum insured" is one of the most
crucial phrases associated with your medical coverage. For this reason, it is critical that you
comprehend the significance of the sum covered in relation to your health insurance policy. In
the event of a claim, the insurer will utilise the policy's coverage to pay the claim in full, up to
the policy's total insured. To the extent that a claim exceeds the policy maximum, the insured is
responsible for the difference. If your medical costs surpass your policy's maximum benefit, you
will be responsible for the difference.

Sum Insured

The maximum amount your health insurance policy will pay out in a year for medical expenses
is known as the "sum insured." You'll have to pay out of pocket for anything above what's
covered by insurance. Indemnity theory underlies how this works. Loss incurred as a result of
harm done to you will be covered. This means you were compensated for the harm or loss you
sustained. In the event of hospitalisation within the policy year, you will receive no more than
the annual maximum benefit amount agreed upon at the time of purchase.

Let's say you have 2 Lakhs of overall insurance and you end up in the hospital twice in a year.
Your initial hospital charge is $70,000 if the first scenario occurs. Your 1.5 million rupee
hospital is available in Case 2. This means that you spent a total of 2.2 lakhs on medical care last
year. The insured person would be responsible for the remaining 20,000 after the insurance
company has paid its share of 2 lakhs.

EXAMPLE

Let's pretend Rahul, now 19, is enrolled in his dad's health insurance plan for the family. He was
hospitalised after a diagnosis of malaria. The total bill from the hospital was 75,000 rupees.
Rahul's dad had gotten them all covered by a health insurance policy with a five-million rupee
(US$85,000) deductible. Insurance covered most of Rahul's hospital bill, but he was responsible
for paying any applicable deductibles.

Shreya, Rahul's younger sister, was just 14 when she died in a terrible vehicle accident on her
way home from school. She was seriously hurt and spent weeks in the hospital because of it. If
you add up the cost of the procedure, the total hospital bill came to almost Rs. 4.5 lakhs.

PARAMETERS Incident 1: Rahul's Incident 2: Shreya’s accident

hospitalization (Malaria)

Hospital bill Rs. 75,000 Rs. 4,50,000

Claim amount Rs. 75,000 Rs. 4,50,000

Out-of-pocket expense Rs. 7,500 (10% deductibles) Rs. 67,500 (10% deductibles +
remaining hospital bill)

Remaining sum insured Rs. 4,25,000 Rs. 0

In both cases, Rahul's dad had to pay 10% of the bill out of pocket because of deductibles (for
more on deductibles, see below) (find the meaning of deductibles in the bottom section of this
article). Please take note that the insured sum was exhausted as a result of incident 2 (Shreya's
accident).

Rahul's father spent a total of Rs 75,000 (7,500 + 67,500) out of pocket as a result of the two
incidents. If he had no medical insurance, he would have had to pay about $5.25 million. A
family-floater health insurance plan's coverage amount is calculated as follows.

Sum Insured depends on a few Factors

Age: “As you may easily obtain a large sum insured at low premium costs when you are young,
you should go for a larger sum insured. Medical costs tend to rise with age, so if you're buying
health insurance later in life, it's wise to have a bigger sum insured.

Health condition: Choose a bigger sum insured if you have certain health conditions, such as
diabetes, heart disease, high blood pressure, renal disease, etc., since you may need to utilise
your health insurance coverage more frequently than others.

Current life stage: Having a family or planning to have one means taking on greater financial
responsibility, which means you should think about raising your sum covered.
 Lifestyle habits: The health hazards associated with modern lifestyles, such as inactivity, poor
diet, etc., are considerable. You would be advisable to increase your sum insured in order to
safeguard yourself adequately against the possibility of financial hardship in the event of a
variety of unforeseen events.

 Number of members covered

Comparatively, Individual Plans and Senior Citizen Policies cover fewer people than Family-
floater and Employer's Group Plans. Choose the policy's coverage by choosing the sum insured.
In the event of a medical emergency within the policy's term, you'll have the freedom to utilise
the funds anyway you see fit. A smaller quantity insured may be drained after just a few claims.
It's possible that this will increase your out-of-pocket costs.

Role of sum insured in general insurance

The term "sum insured" is commonly used in the context of health insurance, and it refers to the
maximum amount of money that may be claimed for treatment. Partial use is permitted, with the
remaining balance available for the following claim until either the maximum benefit is
exhausted or the plan expires, whichever occurs first.

To the extent permitted by the policy's terms, the sum insured may be paid out to any or all
covered persons. Under floater policies, the sum covered is not predetermined and can be used
by any insured party.

When we Can Increase the Sum Insured of Insurance Policy

 At the Time of Policy Renewal – You have the option of increasing your sum covered
when it comes time to renew your health insurance policy. Your premium will go up
according to the increase in your total coverage.
 Through Cumulative Bonus – The cumulative bonus can also be used to increase your
sum covered. You'll receive this bonus after each year in which you don't file any claims,
and it won't affect your premiums in any way.
 SUM ASSURED

Sum Assured is another often used term. The final payout from your term policy will be this set
amount. In the realm of life insurance, it is commonly employed.
To rephrase, the sum promised is the first payment promise made to you or your beneficiary
when you signed up for the policy. The insured will get the same predetermined benefit
regardless of how long the policy is in effect
.
If the death benefit on a life insurance policy is guaranteed to be a maximum of 15 lakhs, for
instance, the policyholder's heirs will get that amount in the event of the insured's death.

3 benefits of choosing the right sum insured

Choosing the right sum insured will give you the following benefits.

1. Maximum financial coverage

A higher percentage of your medical bills might come out of pocket if your insurance coverage is
insufficient. Yet, if you select an adequate level of protection, you may be free from financial
anxiety when it comes to health issues. This is so as the insurance company will assist you
financially with treatment and other coverages as detailed in the policy.

2. No hassle of multiple claims

3. According to what has been discussed thus far, the regulator has approved several claims that
amount to the maximum cost of a medical incident. This should, however, be your very last
option. It takes time to submit many claims. The time it takes to settle a lawsuit might prevent
emergency funding from being disbursed. Picking an affordable health insurance deductible
might avoid this problem from arising.
4. Option to make claims until the end of the policy period

If you have a lower sum covered, claims may be paid out of your own pocket sooner than
expected. You can continue to make claims until the end of the policy period without paying for
additional coverage if you choose an appropriate sum covered.
DIFFERENCE BETWEEN SUM INSURED AND SUM ASSURED

Sum Insured Sum Assured

Sum insured is the value applied to Non-life Sum assured is the value applied to Life
insurance. insurance policies.
It basically is based on the principle of It is that fixed amount that the insurer pays the
indemnity, that provides a reimbursement/ policyholder in case of an eventuality.
compensation to damage/loss.
There is no monetary benefit rewarded, its Sum assured is a monetary benefit that is given
reimbursement as per the Sum Insured. to the insured or his/her family after policy’s
term is up.

People frequently confuse the sum assured in a health insurance policy with the amount covered.
These statements, however, carry with them different connotations and repercussions. If the
insured event occurs, the policyholder will get the "amount guaranteed." As an example, if you
get life insurance, the insurance company will guarantee to pay out a certain amount to your
designated beneficiary in the case of your untimely demise. The sum guaranteed refers to the
amount of money that will be paid out to the nominee in the case of the insured event.

In contrast to life insurance, health insurance policies should not be based on the concept of
amount assured. To be fair, some policies currently offer benefits in the form of both sum
insured and sum guaranteed.

CONCLUSION

In general, it's important to know why concepts like "sum insured" matter when selecting a
health insurance policy and to pick a sum that's sufficient for your requirements and those of
your loved ones. You'll have to pay more in premiums for a bigger sum covered, but that's worth
it to avoid having to worry about money during a difficult emotional moment. As a result of the
exponential growth in healthcare expenditures, day-to-day and especially COVID-19 medical
costs are rising. Patients often struggle to afford treatment due to the high costs connected with
hospitalisation. If you're in this position, you should always go for the maximum amount of
coverage available, known as the "sum insured." It's also useful for making adjustments for
inflation. Considering the current expense of medical care, the sum insured you choose while
purchasing an insurance may seem reasonable. Nonetheless, this strategy has the long term in
mind. Let's say you keep renewing it for 10 years, at which point the price of therapy has
increased.