Sum Assured

Insurance

Sum assured is the guaranteed amount the insurer will pay to the nominee upon the insured's death (for life insurance) or the policyholder on maturity (for endowment/money-back). For term insurance, it is the pure death benefit -- the reason you buy insurance.

In detail

Human Life Value (HLV) method for calculating required sum assured:nHLV = Annual income x income replacement yearsnSimpler rule: 10-15x annual income + outstanding loansnnFor a 30-year-old earning Rs 15L/year with Rs 40L home loan:nMinimum sum assured = Rs 15L x 15 + Rs 40L = Rs 2.65 CrnnFor health insurance: sum assured = maximum insured amount per policy year. Family floater sum assured is shared among all members.

Formula

Life insurance need = (Annual income x 15) + Outstanding loans + Future goal corpusnHealth sum assured: minimum Rs 5L individual, Rs 10L family floater in metro cities

Real-life example

🇮🇳 India example

Suresh earns Rs 20L/year. He has 3 dependents, Rs 60L home loan, child education fund needed Rs 20L in 10 years. Sum assured needed: Rs 20L x 15 + Rs 60L + Rs 20L = Rs 3.8 Cr. He buys Rs 4 Cr term plan for safety margin.

Frequently asked questions

Should I buy a higher sum assured than calculated? ▼
Yes, add a 20-25% buffer for lifestyle inflation and unexpected needs. Term insurance is cheap -- buying Rs 1 Cr instead of Rs 75L adds only Rs 1,500-2,000/year to premium for a 30-year-old. Always err on the higher side.