When it comes to insurance policies, the term "sum insured" is often used but not everyone knows what it means. Simply put, the sum insured is the maximum amount of money that an insurance policy will cover in the event of a claim. This means that if the policyholder experiences a loss or damage to their insured property, the sum insured is the maximum amount of financial coverage they can receive from their insurance company.

In this blog, we will understand in depth what the sum insured is.

What is the Sum Insured?

Simply put, the sum insured is the maximum amount an insurance company will pay you in the event of a covered loss or damage. It's like a safety net, protecting you from the financial fallout of unforeseen circumstances. This term is primarily used in non-life insurance policies, such as:

Health insurance: If you fall ill and incur medical expenses, the sum insured is the maximum amount your health insurance will cover.

Motor insurance: If your car gets damaged in an accident, the sum insured dictates the repair costs covered by your insurance.

Home insurance: In case of fire, theft, or other perils covered by your policy, the sum insured is the maximum compensation you'll receive for your damaged or lost belongings.

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Why is Sum Insured Important?

Choosing the right sum insured is a critical decision that impacts your financial well-being in times of need. Let's delve into why it matters:

Financial security: A sufficient sum insured ensures you're adequately covered in case of a significant loss. Imagine facing a hefty medical bill without proper health insurance! A well-chosen sum insured acts as a financial buffer, shielding you from such anxieties.

Claims settlement: An accurate sum insured facilitates a smooth claims settlement process. If your claim amount exceeds the sum insured, you'll be responsible for the remaining costs, potentially leading to financial strain.

Additional Read: How to calculate sum insured for fire insurance?

Sum Insured vs Sum Assured

Sum insured is often confused with sum assured, which is a term used in life insurance policies. Sum assured is the guaranteed amount that will be paid out to the policyholder's beneficiaries in the event of their death.

While sum insured and sum assured are both important aspects of insurance policies, they are not interchangeable terms. It is important to understand the difference between the two when selecting an insurance policy.

Factors Influencing Sum Insured

The sum insured is influenced by several factors, including the type of insurance policy, the level of coverage required, and the risk involved. For instance, a policyholder who wants a higher level of coverage will have to pay a higher premium, which will result in a higher sum insured.

Impact of Age and Health History

Age and health history are critical factors that determine the sum insured. Typically, older individuals or those with pre-existing medical conditions will have to pay a higher premium to secure a higher sum insured. This is because they are considered to be at a higher risk of making a claim.

Inflation and Sum Insured

Inflation is another factor that affects the sum insured. Over time, the cost of living increases, and the value of money decreases. As a result, the sum insured should be adjusted to reflect the current cost of living. This can be done by either increasing the premium paid or by adjusting the sum insured to account for inflation.

The Premiums and Sum Insured

Calculating Premiums Based on Sum Insured

When it comes to insurance, the sum insured is the maximum amount that an insurance company will pay out in the event of a claim. The premium, on the other hand, is the amount that the policyholder pays to the insurance company for coverage. The premium is calculated based on several factors, including the sum insured.

Insurance companies use a variety of methods to calculate premiums, but one common method is to base the premium on a percentage of the sum insured. For example, if the sum insured is Rs100,000 and the insurance company charges a premium of 1%, the policyholder would pay an annual premium of Rs1,000.

Premiums and Risk Assessment

Insurance companies use risk assessment to determine the likelihood of a claim being made and the potential cost of that claim. The sum insured is a key factor in this assessment, as it determines the maximum amount that the insurance company could potentially have to pay out.

In general, the higher the sum insured, the higher the premium will be. This is because a higher sum insured represents a greater potential cost to the insurance company in the event of a claim. However, other factors such as the policyholder's age, occupation, and health may also be taken into account when calculating premiums.

It's important for policyholders to carefully consider the sum insured when purchasing insurance. While a higher sum insured may provide greater peace of mind, it can also result in higher premiums. It's important to strike a balance between adequate coverage and affordable premiums.

Claims and Sum Insured

Filing a Claim

When an individual files a claim with their insurance provider, the sum insured is the maximum amount that the insurer will pay out in the event of a covered loss. The claim amount cannot exceed this limit, and any amount over the sum insured will be the responsibility of the policyholder.

To file a claim, the policyholder must provide documentation of the loss, such as police reports, medical bills, or repair estimates. The insurer will then review the claim and determine the amount of the loss, up to the sum insured.

Reimbursement vs Indemnity

There are two types of payment methods that insurers use to settle claims: reimbursement and indemnity.

With reimbursement, the policyholder is reimbursed for the actual cost of the loss, up to the sum insured. For example, if a policyholder's car is damaged in an accident and the repair cost is 50,00,00, the insurer will reimburse the policyholder for the full 50,00,00, as long as it does not exceed the sum insured.

With indemnity, the insurer pays the policyholder the value of the loss at the time it occurred, up to the sum insured. For example, if a policyholder's car is totaled in an accident, the insurer will pay the policyholder the current market value of the car, up to the sum insured.

Multiple Claims and Sum Insured

If a policyholder files multiple claims during the policy period, the sum insured will be reduced by the amount of each claim paid out by the insurer. Policyholders need to keep track of their claims and the remaining sum insured, as they may need to purchase additional coverage if they exceed the limit.

Enhancing Your Sum Insured

Regarding insurance plans, the sum insured is the maximum amount that the insurer will pay out in the event of a claim. While choosing an insurance plan, it is important to ensure that the sum insured is adequate to cover any potential losses. However, in some cases, the sum insured may not be sufficient to cover all the expenses. In such cases, one can enhance the sum insured by opting for additional coverage.

Increasing Sum Insured

Most insurance plans allow policyholders to increase their sum insured at any time during the policy term. This can be done by paying an additional premium. Increasing the sum insured ensures that the policyholder is adequately covered in unforeseen circumstances. It is advisable to review the sum insured periodically and increase it if necessary.

Top-Up Plans and Riders

In addition to increasing the sum insured, policyholders can also opt for top-up plans or riders to enhance their coverage. Top-up plans provide additional coverage over and above the sum insured by the base policy. They are useful in high-value claims exceeding the sum insured by the base policy.

Riders, on the other hand, are add-ons to the base policy that provide additional coverage for specific events or risks. For example, a critical illness rider provides coverage for specific illnesses, while a personal accident rider provides coverage in case of accidental death or disability.

It is important to note that top-up plans and riders come at an additional cost. Policyholders should carefully evaluate their insurance needs and opt for additional coverage only if it is necessary.


To summarize, choosing the right sum insured is crucial for ensuring financial security in case of any unforeseen event. The sum insured should be based on the business requirements and should be regularly reviewed and updated to ensure adequacy.


1. What is the sum insured in insurance?

The sum insured is the maximum amount an insurance company agrees to pay in the event of a covered loss or claim. It represents the financial protection provided by the insurance policy.

2. How is the sum insured determined?

The sum insured is typically determined based on factors like the insured's needs, the type of coverage, and the value of the insured property or life.

3. Can the sum insured be changed during the policy term?

In some cases, policyholders can request adjustments to the sum insured, subject to approval from the insurance company.

4. What happens if the sum insured is insufficient?

If the sum insured is insufficient to cover the actual loss, the policyholder may be responsible for covering the remaining costs.

5. Does the sum insured affect the premium amount?

Yes, the sum insured directly influences the premium amount. A higher sum insured generally leads to a higher premium, reflecting increased coverage and potential risks.