Glossary · UK
What is Sum Assured?
The fixed lump sum a life insurance or critical illness policy pays out on the insured event, chosen by the policyholder when taking out the policy.
Full Definition
The sum assured is the fixed amount of money that a life insurance, critical illness or similar protection policy will pay out if the insured event -- typically death, or diagnosis of a specified critical illness -- occurs during the term of the policy. It is chosen by the policyholder when taking out the cover, usually based on what a payout would need to cover, such as clearing an outstanding mortgage, replacing a number of years' income for dependants, or covering specific future costs like children's education, and it directly affects the premium charged -- a higher sum assured means a higher premium, all else being equal. On a level term policy the sum assured stays the same throughout the term, while on a decreasing term policy (commonly used alongside a repayment mortgage) the sum assured reduces over time roughly in line with a mortgage balance, resulting in a lower average premium than a level sum assured would cost for the same starting amount. Some policies combine features, such as family income benefit, which pays the sum assured out as a regular income for the rest of the policy term rather than as a single lump sum, or include an option to increase the sum assured later without full medical underwriting following specific life events such as marriage, having a child, or increasing a mortgage. It is worth periodically reviewing whether an existing sum assured is still adequate, since needs such as mortgage size, income and dependants often change significantly over the life of a long-term protection policy.