What does the term 'Principal Sum' refer to in an insurance policy?

The term 'Principal Sum' in an insurance policy specifically refers to the lump sum payment that is made upon the death of the insured. This is a key aspect of life insurance policies, particularly in the context of accidental death and dismemberment (AD&D) insurance, where it denotes the amount that beneficiaries will receive when the insured passes away. The principal sum is predetermined in the policy and is a fundamental feature that provides financial security to the insured's beneficiaries.

This definition emphasizes the importance of understanding the financial obligations of an insurance policy and clearly differentiates it from other components such as additional benefits, premiums, or cumulative payments made through the policy's duration. Thus, recognizing the principal sum allows policyholders to grasp the core coverage and expected benefits associated with their insurance agreement.