Sum assured insurance is the amount of money that an insurance company agrees to pay out in the event of a claim. It is one of the main factors used to determine how expensive a policy is, as those with a higher sum assured will usually be costlier.
The sum assured is usually determined by a combination of factors, including the policyholder’s age, health, lifestyle, occupation, and the value of any assets that need to be protected.
Generally speaking, the younger and healthier you are, the lower the sum assured you will need. Younger people are also likely to pay lower premiums on policies since they carry less risk for the insurance company.
At the same time, for those who are older or have previous health problems, the sum assured will be higher, as the insurance company needs to factor in the increased risk of the policyholder making a claim.
When considering a life insurance policy, the sum assured will be based on the amount of money that needs to be provided to the policyholder’s beneficiaries in the event of their death. This is usually the policyholder's salary plus any other assets or debts that will need to be taken care of.
For property or liability insurance policies, the sum assured will usually be the amount needed to rebuild or replace the insured property if it is damaged or destroyed.
It is important to carefully consider the level of sum assured you are looking for when comparing different insurance policies. A higher sum assured offers better protection, but it will also increase the cost of the policy.
Ultimately, it is up to the individual policyholder to decide the level of sum assured they are comfortable with. A financial advisor or insurance broker can help to provide guidance on this.