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Written byLakshey Bahlverification-badge
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Published 11th May 2026
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Reviewed byVaibhav Kumarverification-badge
Last Modified 11th May 2026
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What is Sum Assured in Life Insurance?

Sum assured in life insurance or term insurance plan refers to the predetermined amount that the insurance company pays to the insured’s family in case of the insured’s demise within the policy period. It remains fixed throughout the policy period and is also called the death benefit or life cover.

The coverage of your life insurance plan is determined by the sum assured. Additionally, the sum assured plays a major role in determining the premium of your life insurance policy.

The sum assured varies depending on several factors, such as the income of the insured, the future needs of their dependants, outstanding debts, budget, etc. It is decided by the insured when purchasing the policy, based on their financial goals and coverage needs.

How is Sum Assured Determined?

The sum assured of your life insurance policy depends on several factors, such as the insured's age, the number of dependants, income, etc. Therefore, to determine the adequate sum assured, you need to consider these factors carefully. Here are the top factors that help determine your life insurance sum assured:

Age

Your age helps assess the risks involved in securing your life. If an insured is considered a higher risk by the insurer, they are eligible for a lower sum assured. Generally, younger policyholders are considered to be of lower risk as they have comparatively fewer health risks.

Buying life insurance at an early age helps secure a higher sum assured at lower premiums.

Income

Another crucial factor that helps determine your sum assured is your current income. Your income level helps determine whether you are eligible for a higher sum assured. Ideally, you should select a sum assured equal to 10 to 15 times your annual income. This will help your family meet their future financial obligations and daily needs effortlessly in your absence.

Moreover, your income is taken into account while calculating the Human Life Value (HLV), which helps determine the actual coverage you need. The formula of HLV is:

(Annual Income – Personal Expenses) x Remaining Working Years x Discounting Factor

Health Condition

Your health conditions also play a crucial role in determining your life insurance sum assured. If you have any pre-existing health conditions that threaten your life expectancy, the insurer may not allow you a higher sum assured. Moreover, you may need to pay a higher premium.

Not disclosing your health conditions while buying a life insurance policy can also lead to claim rejection. So, ensure you provide accurate information about your health conditions to avoid such hassles.

Occupation

An individual's profession helps assess their life risk, which in turn helps determine the sum assured. If you are engaged in high-risk professions, such as being a pilot, a construction worker or working in any hazardous environment, you are likely to secure limited life insurance coverage and higher premiums.

However, if you are engaged in office work that involves lower life risks, you can become eligible for higher life insurance coverage at affordable premiums.

Premium Affordability

Considering your financial capacity is crucial while choosing the sum assured of your life insurance plan. You should select a sum assured that aligns with your capability to pay regular premiums.

If you select a higher sum assured and cannot pay the premium regularly, you may lose the benefits of your life insurance plan. When choosing a sum assured, balance the required coverage with your ability to pay premiums consistently.

Types of Sum Assured

Based on the type of policy you are selecting, the sum assured type will also differ. Each type of sum assured has a specific purpose and impacts the death benefit accordingly. Here are the three types of sum assured in life insurance policies:

  • Basic Sum Assured
    This is the most common sum assured type in life insurance that remains fixed throughout the policy term. It does not change over time and ensures a fixed payout after the insured’s demise within the policy period.
  • Decreasing Sum Assured
    As the name suggests, a decreasing sum assured is one which reduces over the policy term on an annual basis. This type of sum assured is applicable to loan protection policies or mortgages. Under such policies, the sum assured decreases as your outstanding loan amount decreases.
  • Increasing Sum Assured
    In this case, your sum assured will increase throughout the policy period. The rate or amount of increase is usually predetermined. An increasing sum assured is designed to increase your coverage amount as your financial requirements grow or to keep pace with inflation.

What is Maturity Amount in Life Insurance?

Maturity amount, as the name suggests, is the amount you receive from your insurance company on the maturity of your life insurance policy. Unlike the sum assured, the maturity benefit is not fixed; it includes accrued and additional bonus amounts along with the sum assured.

The maturity benefit is not applicable to term insurance plans. You can claim maturity benefits as a lump sum at policy maturity for other life insurance plans, such as savings, endowment, ULIP, etc.

For instance, you have purchased a 10-year endowment plan . At maturity, i.e., after 10 years, you can claim the maturity benefits if you have maintained regular premium payments and completed the term.

How is Maturity Amount Calculated?

The maturity value of life insurance can be calculated by adding the basic sum assured, reversionary bonuses, and final additional bonuses. The formula is as follows:

Maturity Amount = Basic Sum Assured + Reversionary Bonuses + Final Additional Bonuses (FAB)

Here,
  • Basic sum assured refers to the guaranteed base payout amount that an insured will receive from the insurance company.
  • Reversionary bonuses refer to the annual bonus amount that has been declared by the insurance company.
  • Final additional bonus (FAB) stands for the additional bonus that is paid for long-term policies during maturity.


Let’s take a look at the example below, where we need to calculate the maturity amount for a ₹5 lakh basic sum assured, ₹2.4 lakh reversionary bonus, and FAB, over a 20-year term:

Maturity Amount = Basic Sum Assured + Reversionary Bonuses + Final Additional Bonus

= ₹5 lakh + ₹2.4 lakh + ₹0

= ₹7.4 lakh

Here, the basic sum assured is ₹5 lakh, which is the guaranteed amount. Your policy has accumulated a reversionary bonus of ₹2.4 lakh over 20 years of the policy period. The insurer has not declared any final additional bonus, so the total maturity amount in this case becomes ₹7.4 lakh.

This explains how the final payout is more than the actual sum assured by adding the bonus amount to it..

Types of Bonuses That Affect Maturity Amount

Bonuses play a crucial role in life insurance policies, especially in traditional policies that offer maturity benefits. The sum assured provides the insured with the base value, while bonuses are additional rewards offered for staying invested over the policy period.

Here are the different types of bonuses offered by a life insurance policy:

  • Simple Reversionary Bonus
    A simple revisionary bonus is calculated on the sum assured of your life insurance policy. It is applicable to traditional life insurance plans and continues to accumulate until policy maturity. This bonus is declared per thousand of the sum assured annually.

    For instance, if the rate of the simple reversionary bonus is ₹50 per thousand of your sum assured and your sum assured is ₹10 lakh, the bonus amount will be as follows:
    Bonus = 50 x (10 lakh/1000) = ₹50,000
  • Compound Reversionary Bonus
    Although it is similarly calculated as a percentage rate, the compound reversionary bonus is applicable to both the sum assured and all earned bonuses that were previously available under the policy.

    Each year's bonus is added to the sum assured, and the bonus for the following year is computed using that total. Because of the compounding impact, these bonuses grow over time.

    For instance, the sum assured is ₹10 lakhs, and a compound reversionary bonus of 5% is declared for the duration of the policy. The accumulated Compound Reversionary Bonus (CRB) for the first year will be ₹50,000, or 5% of ₹10 lakh.

    This ₹50,000 will be added to the sum assured of ₹10 lakh in the second year, making the bonus ₹52,500 [5% of (₹10 lakh + ₹50,000)]. Because of the compounding effect, the compound reversionary bonus will rise annually.
  • Terminal/Final Additional Bonus
    This is the final bonus, which is applicable for life insurance policies attaining maturity. Policyholders who continue their life insurance plans until maturity can avail the terminal bonus.

    So, if you have surrendered your life insurance policy or obtained the paid-up value, this bonus will not apply.
  • Guaranteed Additions
    Guaranteed additions, as the name suggests, are fixed additions promised by the insurer to the insured upon purchase of the policy. It is not linked to the insurance company's profits.

    This bonus specifies the exact extra amount to be added to the maturity value, providing certainty to the policyholders.
  • Loyalty Additions
    Policyholders who maintain their life insurance policies for a long period of time without any policy lapse receive loyalty additions. This bonus is provided to policyholders as a reward for their long-term commitment.

    The amount of the bonus may vary depending on the policy duration, insurance company, etc.

Key Differences Between Sum Assured and Maturity Amount

Sum assured and maturity amount are the two major payouts offered by a life insurance policy. However, both differ in payment terms, amount certainty, applicable policies, etc. The key difference between the sum assured vs maturity amount is as follows:

ParameterSum AssuredMaturity Amount
DefinitionSum assured is the guaranteed amount that an insurer agrees to pay to the beneficiaries in case of the insured’s demise within the policy period. Maturity amount, on the other hand, is the total payout given to the insured along with the sum assured when they survive the policy term. This includes bonuses, investment returns, etc., that have been accumulated over time.
When PaidIt is paid after the insured’s demise within the policy period to ensure financial protection for the insured’s family or dependants.It is paid when your policy term comes to an end, and you outlive the term. Maturity benefit provides financial assistance for the insured’s long-term financial goals, such as children’s education, retirement, etc.
Who ReceivesIt is paid to the beneficiaries or nominees as selected by the insured while purchasing the policy.The insured receives the maturity benefit after completion of the policy term.
Amount CertaintyThe sum assured is a fixed amount decided at the time of buying the life insurance policy. Maturity amounts are not fixed. They vary depending on bonuses, market-linked returns, guaranteed additions, etc.
Includes Bonuses?The sum assured does not include any bonuses or additional returns. It is the base amount decided by the insured and insurer as life insurance coverage.Maturity benefits include loyalty additions, reversionary bonuses, and other returns, which increase the payout amount beyond the sum assured.
Applicable PoliciesSum assured is applicable to all life insurance policies, such as endowment plans, term insurance, ULIPs, and money-back policies. It applies to all life insurance products except pure term insurance plans. However, if you opt for term insurance with return of premium, the maturity benefit is applicable.
Tax TreatmentThe sum assured paid on death is always fully tax-free under Section 10(10D) (now Section 11) (old tax regime), ensuring maximum benefit to the nominee without any tax liability.The maturity amount is generally tax-free under Section 10(10D) (now Section 11) (old tax regime), subject to premium limits, exceeding which taxes will be applicable.
Calculation BasisIt is calculated primarily on the basis of your coverage needs, lifestyle, health, age, and premium affordability.It is calculated based on policy period, premium amount, interest earned, the type of fund options you select for the policy, etc.

Sum Assured and Maturity Amount Across Different Policy Types

Sum assured and maturity amount behave differently across different life insurance policies. Understanding their operating procedures is necessary to maximise the benefits of a life insurance policy.

Here’s how they work across various life insurance policies:

Policy TypeSum Assured (Explanation)Maturity Amount (Explanation)
Term InsuranceIn term insurance, the sum assured is the primary payout provided by the insurance company.

If the insured passes away within the policy term, the nominees can claim the sum assured. It does not include any savings component.

So, coverage is usually higher at comparatively affordable premiums.		Maturity amount is not applicable to term insurance, as this policy is designed for pure risk protection.

However, term plans with a return of premium option give back the entire premium paid within the policy term if the insured outlives the term.
Endowment PlansSum assured serves as life cover and as the basis for calculating bonuses in endowment plans.

Nominee receives the sum assured along with bonuses in case of the insured’s untimely demise during the policy term.

Compared to term insurance, the sum assured is usually lower for the same premium because part of the premium is allocated toward savings.		The maturity amount in endowment plans includes the sum assured plus accumulated bonuses such as reversionary and final additional bonuses.

This makes the final payout higher than the base sum assured.

It provides a combination of financial protection and disciplined long-term savings for future goals.
ULIP (Unit Linked Insurance Plan)In ULIPs, the sum assured provides life cover and ensures a minimum guaranteed benefit upon the insured’s demise.

However, the role of the sum assured is secondary as a major portion of the premium is invested in market-linked funds.		The maturity amount in ULIPs is market-linked and depends on the fund value at the end of the policy term.

Since returns depend on market performance and NAV movements, the maturity amount may vary.
Money-Back PlansIn money-back plans, the sum assured represents the total life cover and is paid in full to the nominee after the insured’s demise within the policy period, regardless of any survival benefits already paid.

This ensures that the insured’s family receives complete financial protection even if periodic payouts are made during the policy term.		The maturity amount in money-back plans is the remaining portion of the sum assured, along with bonuses, after periodic survival benefits have been paid throughout the policy term.

These plans provide liquidity during the policy duration and a final lump sum payout, making them suitable for individuals needing periodic cash flow.

Sum Assured vs Maturity Amount: Real Calculation Examples

Understanding the calculation method of the sum assured and the maturity amount is crucial to determining your final payout. The following is a detailed explanation using real-life scenarios for different types of insurance :

Example 1: Endowment Plan

Ravi is a 30-year-old salaried professional. He buys an endowment plan with a sum assured of ₹10 lakh for 20 years to build savings alongside life cover. The insurance company agrees to pay a bonus of ₹48 per ₹1, 000 sum assured annually.

Ravi has accumulated the following amount over 20 years:

Bonus = (₹10 lakh / 1, 000) × 48 × 20 = ₹9.6 lakh

therefore, Maturity Amount = ₹10 lakh + ₹9.6 lakh = ₹19.6 lakh

If Ravi survives the term, he will receive ₹19.6 lakh. However, if he passes away during the policy term, his family receives the sum assured plus bonuses. This shows how the maturity value grows significantly beyond the base coverage.

Example 2: ULIP Plan

Neha purchases a ULIP with a sum assured of ₹10 lakh to gain market-linked returns over 15–20 years. A part of her premiums was invested in equity funds, and over time, the fund value grew to ₹15 lakh.

If Neha survives the policy term, she will receive ₹15 lakh. However, if she passes away during the term, her nominee will receive either the sum assured or fund value (whichever is higher, as per policy terms). This case highlights the role of market performance in determining maturity value.

Example 3: Money-Back Plan

Amit chooses a money-back policy with a sum assured of ₹15 lakh to ensure liquidity during the policy term. Over the years, he has received periodic survival benefits of a total of ₹6 lakh.

At maturity, he will receive:

Remaining Sum Assured = ₹15 lakh – ₹6 lakh = ₹9 lakh

Add bonuses (assume applicable)

So, Maturity Amount = ₹9 lakh + bonuses

In case of Amit’s untimely demise during the policy term, his nominee still receives the full ₹15 lakh, regardless of the ₹6 lakh already paid. This case demonstrates how money-back plans balance liquidity and protection.

Factors That Affect Sum Assured and Maturity Amount

Understanding the factors that influence sum assured and maturity amount helps make informed insurance decisions. While the sum assured depends largely on personal risk and financial profile, the maturity amount is influenced by policy structure, performance, and long-term consistency.

The table below explains each factor in detail:

Factors Affecting Sum AssuredExplanationFactors Affecting Maturity AmountExplanation
AgeAge plays a crucial role in determining the sum assured because younger individuals are considered lower risk and can opt for higher coverage at lower premiums.

As age increases, insurers may limit the maximum coverage or charge higher premiums due to increased health risks and reduced earning years.		Bonus RatesLife insurance plans receive annual or terminal bonuses, which are credited to the sum assured, increasing the maturity value.

Your returns increase automatically if the insurer announces a higher bonus rate.
Health ConditionA person's medical history and current health condition affect eligibility for a higher sum assured.

Individuals with pre-existing diseases may face restricted coverage, higher premiums, or policy exclusions.

Insurers assess health risks carefully to determine the level of financial protection they are willing to provide.		Policy TermOne of the main factors influencing the maturity payout is the policy term.

Particularly with participating plans like endowment or money-back plans, longer policy durations give more time for premiums to accrue and bonuses (if applicable) to be announced.

Therefore, it's crucial to choose the policy tenure carefully.
Income LevelThe insured’s income helps insurers determine how much coverage is appropriate.

Higher-income individuals are usually eligible for a larger sum assured, ensuring their dependants can maintain their lifestyle and meet financial obligations even in their absence.		Premium Payment ConsistencyRegular and timely premium payments are essential to ensure that the policy remains active and continues to accumulate bonuses or returns.

Missing premiums can lead to policy lapse or reduced benefits, which directly lowers the final maturity amount received by the policyholder.
OccupationThe nature of one’s job affects risk exposure.

High-risk occupations, such as those involving physical hazards or dangerous environments, may lead to a lower sum assured or higher premiums.

Safer professions typically allow for higher coverage at standard premium rates.		Type of PlanThe type of insurance plan, whether endowment, ULIP, or money-back, determines how the maturity amount is calculated.

Traditional plans rely on bonuses, while ULIPs depend on market performance.

Each plan type offers different return potential, affecting the final payout significantly.
Smoking StatusSmoking is considered a major health risk factor by insurers.

Smokers are likely to face higher premiums and may be offered a lower sum assured compared to non-smokers.

This is because smoking increases the probability of critical illnesses and mortality, affecting the insurer’s risk assessment.		Market Performance (ULIPs)The maturity benefit of market-linked life insurance plans, such as ULIP plans, is determined by market performance.

Your maturity value may rise if your market-linked funds perform well, but payout may decrease if they don't.

You can relate your market-linked investments to your financial goals by monitoring fund performance.

Tax Treatment of Sum Assured and Maturity Amount

Life insurance policies in India not only provide financial protection and savings but also offer significant tax benefits. However, these benefits can be availed in some specific circumstances under the IT Act. Understanding these provisions helps you evaluate the real returns from your policy and avoid unexpected tax liabilities:

Section 10(10D) (Section 11 under IT Act, 2025)

The maturity benefit that you receive from a life insurance policy is tax-free under Section 10(10D) (now Section 11) of the Income Tax Act. However, this exemption is available only if the premium paid does not exceed 10% of the sum assured for policies issued after April 1, 2012.

For older policies issued before this date, the limit is 20%. If this condition is not met, the maturity proceeds may become taxable, reducing overall returns.

New Rule (Post 1 April 2023)

As per the latest tax regulations, if the annual premium of a life insurance policy exceeds ₹5 lakh for policies issued after April 1, 2023, the maturity amount becomes taxable. This rule mainly impacts high-value policies purchased for investment purposes.

However, the tax is applicable only on the gains (returns), not on the total premium paid, which slightly reduces the tax burden.

Death Benefit (Sum Assured)

The death benefit received by the nominee, which includes the sum assured and any additional bonuses, is always completely tax-free under Section 10(10D) (now Section 11).

This exemption applies irrespective of the premium amount, ensuring that the nominee receives the full financial benefit without any tax deductions during an already difficult time.

Section 80C (Section 123 under IT Act, 2025)

Premiums paid towards life insurance policies are eligible for tax deductions under Section 80C (now Section 123) of the Income Tax Act, up to a maximum limit of ₹1.5 lakh per year.

This deduction helps reduce your taxable income while encouraging disciplined financial planning. However, to qualify, the premium should not exceed the prescribed percentage of the sum assured, ensuring compliance with tax-saving conditions.

Common Mistakes Policyholders Make About Sum Assured and Maturity Amount

Misconceptions in understanding the sum assured and maturity amount can lead to poor financial decisions, inadequate coverage, or unrealistic return expectations. Understanding these common mistakes in detail can help you make smarter and more informed choices.

1. Considering the Maturity Amount the Same as the Sum Assured

Many policy buyers believe that the amount they will receive at maturity is exactly equal to the sum assured. However, the maturity amount often includes bonuses or returns in addition to the sum assured.

Ignoring this distinction can lead to confusion, especially when expected returns differ from actual payouts.

2. Ignoring Bonus Variability

Policyholders often assume that bonuses declared by insurers will remain constant throughout the policy term. However, most bonuses are not guaranteed and depend on the insurer’s financial performance.

This variability can significantly affect the maturity amount, leading to lower or higher returns than initially expected.

3. Opting for a Low Sum Assured for Higher Maturity

Some individuals focus more on receiving higher maturity benefits and opt for policies with a lower sum assured to reduce premiums. This approach can be risky because it compromises the primary purpose of life insurance, financial protection, leaving dependants underinsured in case of an unfortunate event.

4. Surrendering Policies Early

Many policyholders exit their policies prematurely due to financial needs or dissatisfaction with returns. Early surrender usually results in significantly reduced payouts, as bonuses may not fully accrue and surrender charges may apply.

This leads to financial loss and defeats the purpose of long-term investment.

5. Not Understanding Guaranteed vs Non-guaranteed Components

A common mistake is assuming that all parts of the policy benefits are guaranteed. While the sum assured and some additions may be fixed, bonuses and returns are often non-guaranteed.

Not understanding this difference can create unrealistic expectations and dissatisfaction at the time of maturity.

The difference between sum assured and maturity amount is essential in understanding how life insurance works. While the sum assured provides financial protection to your family in case of your demise within the policy period, the maturity amount focuses on savings and returns if you survive the policy term.

Both components serve different purposes, so it is important to evaluate them carefully before choosing a policy. A balanced approach ensures adequate life cover along with meaningful long-term financial benefits.

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