What is the difference between sum assured and death benefit?

Don’t get confused between sum assured and death benefit. They are definitely not the same. Let's look at both the definitions to know the actual meaning of these two terms.

What is Sum Assured?

Sum assured is a predetermined amount that the insurer pays in case the insured event takes place. The insured event in a life insurance policy would be the death of the policyholder during the policy term.

Both Sum assured and death benefit is a very important factor in deciding the premium. Other factors include the age, policy period, medical condition and the type of insurance policy. But with a traditional insurance plus investment plan, the sum assured may not exactly mean the death benefit. This is due to a change in regulations that define the minimum level of death benefit for all policies.

What is a Death Benefit?

The sum assured in traditional plans is usually the minimum amount guaranteed on maturity or on death of the policy holder. Moreover, participating plans declare the annual bonus as a percentage of this sum assured.

But if the sum assured is 10 times more than the annual premium, the insurer will have to declare a lower bonus as a percentage of the sum assured. Thus, to be able to offer a higher percentage of bonus, insurers have divided into two diversions the sum assured and the death benefit.

Now, in traditional plans, sum assured usually means the minimum guaranteed amount payable on maturity. But as for death benefits they are paid as higher of the sum assured or 10 times the annual premium if you are below 45 years, or 105% of the premiums paid till date.