In the realm of life insurance, especially when dealing with the Life Insurance Corporation of India (LIC), the term “sum assured” is pivotal. It represents the guaranteed amount that the policyholder or their beneficiaries will receive in the event of an unfortunate occurrence, such as the policyholder’s death or the completion of the policy term. Understanding what is sum assured in LIC is essential for anyone looking to secure their financial future through LIC policies. This blog post will explore what sum assured means, the different methods to calculate it, and how to check your sum assured through a step-by-step process.
What is Basic Sum Assured in LIC?
The basic sum assured in LIC refers to the minimum amount guaranteed to be paid out by the insurer under the life insurance policy upon the policyholder’s death or at the policy’s maturity, depending on the policy type. It is a critical feature of life insurance, providing a safety net for the policyholder’s beneficiaries.
Key Features of Basic Sum Assured:
- Fixed Amount: The basic sum assured is predetermined at the time of policy purchase and remains unchanged throughout the policy term.
- Foundation for Benefits: It serves as the basis for calculating other benefits, such as bonuses and rider benefits.
- Impact on Premiums: A higher basic sum assured results in higher premium payments, while a lower amount translates to lower premiums.
What is Sum Assured in LIC Policy?
The term “sum assured” in an LIC policy encompasses more than just the basic sum assured. It includes various elements that can affect the total amount payable at maturity or in the event of the policyholder’s death.
Components of Sum Assured:
- Basic Sum Assured: As discussed, this is the guaranteed amount.
- Bonus: LIC policies may accrue bonuses over time, which can enhance the total payout.
- Rider Benefits: Optional riders can be added to the policy for additional coverage, increasing the total sum assured.
Types of LIC Policies and Their Sum Assured:
- Term Insurance: The sum assured is only paid in the event of death during the policy term.
- Endowment Policies: Sum assured is payable at maturity or upon death, whichever occurs first.
- Whole Life Policies: The total sum assured is payable upon death, ensuring lifelong coverage.
- Money Back Policies: A portion of the sum assured is paid back at specified intervals, while the remainder is paid upon maturity or death.
Types of LIC Policies and How Sum Assured Works
LIC offers a range of policies, each with different terms and conditions regarding Sum Assured. Let’s take a look at how it works in various types of policies:
1. Term Insurance Policies
In a Term Insurance Policy, the Sum Assured is the fixed amount that is paid to the beneficiary in the event of the policyholder’s death during the term of the policy.
- Example: If you opt for a LIC Jeevan Amar policy with a Sum Assured of ₹50 lakh, your nominee will receive ₹50 lakh upon your death, provided it occurs within the policy term.
- No Maturity Benefit: Term insurance policies do not pay out any sum assured if the policyholder survives the policy term. However, there could be options like Return of Premium (ROP) in some term policies, which refund the premiums if the policyholder survives the term.
2. Endowment Policies
In Endowment Policies, the Sum Assured is paid out either on the policyholder’s death during the policy term or on maturity if the policyholder survives the term. Endowment policies often include bonuses which increase the total payout.
- Example: A LIC Jeevan Anand policy with a Sum Assured of ₹20 lakh will pay ₹20 lakh (plus any bonuses) either on the policyholder’s death or if the policyholder survives the policy term.
3. Money Back Policies
A Money Back Policy is a type of endowment policy that pays periodic payouts (survival benefits) during the policy term. The Sum Assured is distributed in parts as survival benefits at regular intervals, with the balance paid out at maturity or in case of the policyholder’s death.
- Example: In LIC Jeevan Tarun, if the Sum Assured is ₹10 lakh, a percentage of the Sum Assured is paid at regular intervals, with the balance paid at maturity or on death.
4. Whole Life Insurance Policies
In Whole Life Insurance, the policy provides coverage for the policyholder’s entire life, usually up to 100 years of age. The Sum Assured is paid to the beneficiary upon the policyholder’s death.
- Example: A policy with a Sum Assured of ₹30 lakh in LIC Jeevan Akshay would provide the death benefit to the nominee upon the policyholder’s passing.
5. ULIPs (Unit Linked Insurance Plans)
ULIPs offer a combination of insurance and investment. While the Sum Assured is part of the policy, the final payout depends on the market-linked performance of the policy’s investments. The Sum Assured is typically paid on death or maturity, but the returns are influenced by market conditions.
- Example: In LIC’s Market Plus, if you choose a Sum Assured of ₹10 lakh, this amount will be paid upon death. However, at maturity, you may get more or less than this depending on the performance of the market-linked funds.
How is Sum Assured Determined?
The Sum Assured in any LIC policy is largely determined by the following factors:
- Policy Type: The Sum Assured is often predefined by the type of policy you select (Term, Endowment, ULIP, etc.). For example, in a Term Life Policy, the Sum Assured is typically fixed, whereas in Endowment Plans, the sum can include bonuses and extra benefits.
- Age of the Policyholder: Younger policyholders can typically afford to take on higher Sum Assured amounts due to their lower risk profile. Older policyholders, on the other hand, may have restrictions based on age and health.
- Premium Paid: The Sum Assured is also dependent on the premiums you choose to pay. Higher premiums may result in a higher Sum Assured and vice versa.
- Health and Lifestyle: Your health status and lifestyle choices (e.g., smoking, drinking) can affect the Sum Assured. A policyholder in good health may be eligible for higher coverage at a lower premium.
- Policy Term: A longer policy term could provide higher coverage at a lower premium, depending on the type of plan. For instance, a Whole Life Plan will usually offer a higher Sum Assured.
- Riders and Add-ons: Additional riders such as Accidental Death Benefit, Critical Illness Rider, or Waiver of Premium may enhance the Sum Assured, depending on the specific terms and conditions of the rider.
Importance of Sum Assured in LIC Policies
- Financial Security for Dependents: The primary purpose of the Sum Assured is to provide a financial safety net for your loved ones in the event of your untimely death. The higher the Sum Assured, the greater the financial protection for your family.
- Peace of Mind: Knowing that your family will receive a significant amount of money in case of your death gives you peace of mind, especially if you are the primary breadwinner.
- Tax Benefits: The Sum Assured in LIC policies, particularly when it includes bonuses, is eligible for tax deductions under Section 10(10D) of the Income Tax Act. The premiums paid for the policy may also be eligible for deductions under Section 80C.
- Investment Growth: In policies like ULIPs or Endowment Policies, the Sum Assured acts as a baseline, but the final payout can be higher, depending on the policy’s performance, especially in the case of bonuses and market-linked returns.
- Maturity Benefits: Policies such as endowment or money-back plans ensure that the Sum Assured is paid either on the policyholder’s death or at the end of the policy term (maturity). This makes the Sum Assured a vital aspect in planning for retirement or long-term financial goals.
How to Choose the Right Sum Assured?
When choosing the Sum Assured for your LIC policy, consider the following:
- Dependents and Family Needs: The Sum Assured should ideally cover the expenses and financial needs of your dependents, such as children’s education, spouse’s living expenses, mortgage payments, and so on.
- Income Replacement: A general rule of thumb is that the Sum Assured should be at least 10–15 times your annual income to provide adequate financial support in case of your absence.
- Inflation Factor: Account for inflation in your planning. Choose a Sum Assured that will increase in value over time, especially if you’re opting for an Endowment Policy with bonuses or a Unit Linked Plan with market exposure.
- Premium Affordability: Make sure the premium is within your budget. While a higher Sum Assured offers better coverage, it also results in higher premiums.
How to Check Sum Assured in LIC?
Checking your sum assured in LIC is straightforward and can be done online or offline. Below is a step-by-step guide to check your sum assured online.
Step 1: Visit the LIC Official Website
Go to the official LIC website: www.licindia.in.
Step 2: Navigate to the Customer Services Section
On the homepage, look for the “Customer Services” tab, which provides access to various services for policyholders.
Step 3: Log in to Your Account
If you are a registered user, click on “Login.” Enter your credentials (username and password). If you haven’t registered yet, you can do so by clicking on the “New User? Register Here” link and filling in the required details.
Step 4: Access the Policy Information
Once logged in, navigate to the “Policy Status” or “View Policy” section. This will show all your active policies.
Step 5: Select the Specific Policy
Find the specific LIC policy for which you want to check the sum assured. Click on it to view the detailed policy information.
Step 6: Check the Sum Assured
The sum assured will be displayed along with other important details like premium amount, policy term, and maturity date.
Step 7: Download Policy Document (Optional)
If needed, you can download your policy document for a more comprehensive overview of your sum assured and additional benefits.
To check the sum assured in LIC offline, you need to visit the LIC office and enquire about it with the staff members.
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Wrapping Up
Understanding what is sum assured in LIC policies is essential for ensuring adequate financial protection for your loved ones. With various methods to calculate and check your sum assured, it becomes easier to manage your life insurance effectively. By being informed about your policy and its benefits, you can make better financial decisions that align with your family’s future needs.
FAQs About Sum Assured in LIC
What happens if I don’t pay my premium?
If premiums are not paid within the grace period, the policy may lapse, and the sum assured may not be payable. However, depending on the policy, you might have options to revive it.
Can I change the sum assured later?
Most LIC policies allow you to adjust the sum assured during renewal or through specific rider options, but this typically involves additional premium payments.
Is the sum assured taxable?
The sum assured received by beneficiaries is generally tax-free under Section 10(10D) of the Income Tax Act, provided the premiums are within specified limits.
How do I know if my sum assured is adequate?
Consider your financial obligations, such as debts, family needs, and future expenses. Consulting a financial advisor can also provide tailored guidance.
What is the difference between sum assured and total premium paid?
Sum assured is the guaranteed payout from the insurer, while total premium paid is the amount the policyholder has paid over the policy term. The two are often different as the premium does not necessarily equate to the sum assured.
Understanding sum assured and related concepts can significantly enhance your experience with life insurance. By staying informed, you can ensure that you and your loved ones are well-protected.