Sum assured

What is sum assured?

Sum assured is the amount of money a life insurer guarantees to pay when the event insured under the policy happens. In a term insurance plan, it is the amount paid to the nominee on death. In a savings plan there can be separate guaranteed amounts for death and for maturity. The sum assured is the base on which most other policy values are built: bonuses are declared as a rate per ₹1,000 of it, paid-up values are a proportion of it, and premiums are priced on it.

In life insurance the term "sum assured" is used because the event (death or survival) is certain to be valued at a fixed amount. In general and health insurance, the equivalent idea is the sum insured, which is a limit on indemnity rather than a fixed payment.

How sum assured works in India

Definitions

The IRDAI (Insurance Products) Regulations, 2024 define:

• Sum assured on death: an absolute amount guaranteed to be paid on the death of the life assured.
• Sum assured on maturity: an absolute amount guaranteed to be paid at the end of the policy term.
• Sum assured under health cover: an absolute amount guaranteed on a covered health event, for life insurers' health products.

The death benefit actually paid can be higher than the sum assured on death, for instance when bonuses or a fund value are added.

Minimum cover rules

As of October 2026, every life insurance product must provide at least the following sum assured on death (or under health cover) for the whole term:

These multiples are floors, and the regulations ask insurers to offer higher multiples within their board-approved underwriting policy. They do not apply to reduced paid-up policies, pension products, annuities, decreasing cover pure risk products or group fund-based products. Separately, the death benefit on every product other than single premium must be at least 105% of total premiums paid up to the date of death, except immediate annuities and group fund-based products.

Changes during the policy

• Premium reduction. After three policy years for pure risk products and five for others, a policyholder may be allowed to reduce the premium by up to 50%, with the sum assured revised but not below the minimum multiples. The premium cannot be raised again afterwards.
• Paid-up. When premiums stop on a policy that has acquired a surrender value, the sum assured is reduced in proportion to the premiums paid. See paid-up value.
• ULIP withdrawals. In a unit linked plan, the sum assured payable on death is reduced only by partial withdrawals made in the two years before death.

Sum assured and tax

For maturity proceeds to be tax-free, the premium in any year must not exceed a share of the "actual capital sum assured": 10% for policies issued on or after 1 April 2012, 15% for policies issued on or after 1 April 2013 on a person with a disability or specified disease, and 20% for policies issued between April 2003 and March 2012. The same ratio limits the premium deduction under the old regime. These rules came from sections 10(10D) and 80C of the Income-tax Act, 1961 and continue under the Income-tax Act, 2025. A single premium policy with cover of only 1.25 times the premium fails the 10% test, so its maturity proceeds are generally taxable; death proceeds are exempt either way. See Section 10(10D).

What sum assured means for distribution

• Size the cover to the need. The right sum assured comes from what the family would lose: income for the remaining working years, outstanding loans and future goals, less existing cover and assets. Many customers in India are underinsured because the sum assured was set by the premium they wanted to pay, not by the need.
• Separate protection from savings. A savings plan with the minimum 7 times cover gives a ₹1 lakh annual premium payer only ₹7 lakh of life cover. Showing the customer what the same premium would buy in term cover helps them decide how to split protection and savings.
• Underwriting thresholds. Insurers set non-medical limits and income multiples by age. Higher sums assured trigger medical tests and financial proof, which is where many cases stall. Sales managers should know the thresholds and prepare customers for them. See underwriting.
• Riders are linked to the base. Under the 2024 master circular, a rider's benefit cannot exceed the base sum assured, except accidental death riders, which can go up to three times the base. Agents should check rider limits when designing cover. See riders.
• Read the definition. "Sum assured", "death benefit" and "maturity benefit" are different things in many plans. Explaining the difference at the point of sale, using the Customer Information Sheet, avoids disputes at claim time when the nominee expects a different number.
• Average sum assured as a metric. Distribution teams often track average sum assured per policy alongside average ticket size. A rising premium with flat sum assured can signal a shift to savings-heavy selling rather than better protection.