Social Insurance: Info Guide

Social Insurance

Social insurance programs differ from private insurance in several ways. Contributions are normally compulsory and may be made by the insured’s employer and the state, as well as by the insured himself. Also, benefits are not as strictly tied to contributions as in private insurance. 

For example, to make the programs serve certain social purposes, some groups are included among beneficiaries even though they have not contributed to the required periods of time. Benefits may be raised in response to increases in the cost of living, again weakening the link between contributions and benefits.

There are considerable variations among countries in the financing of social insurance programs. Australia, Sweden, and Denmark are among those in which the state bears a high proportion of the costs. The distribution of costs also varies within each country according to the particular program in question. For instance, it is common for employers to bear the full cost of workmen’s injury insurance.

What is the meaning of Social Insurance:

Social insurance is one of the devices to prevent an individual from falling to the depths of poverty and misery and to help him in times of emergencies. Insurance involves the setting aside of sums of money in order to provide compensation against loss, resulting from particular emergencies.

Social insurance is any government-sponsored program with the following 4 characteristics:

1. The benefits, eligibility requirements and other aspects of the program are defined by statute;
2. explicit provision is made to account for the income and expenses (often through a trust fund);
3. it is funded by taxes or premiums paid by (or on behalf of) participants (but additional sources of funding may be provided as well), and
4. The program serves a defined population, and participation is either compulsory or so heavily subsidized that most eligible individuals choose to participate.

Social insurance has also been defined as a program whose risks are transferred to and pooled by an often government organisation legally required to provide certain benefits.

Social Insurance and Commercial Insurance:

Commercial insurance is necessarily voluntary, whereas social insurance is generally compulsory. In commercial insurance, the policy benefits are according to the premiums paid, while in social insurance the benefits received by the workers are much larger than their contributions.