In this article we will discuss about:- 1. Meaning of Social Insurance 2. Main Features of Social Insurance 3. Characteristics 4. Social Insurance and Commercial Insurance 5. Social Insurance and Social Assistances.

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.

The elimination of the risk of the individual is the basic idea of insurance. It is primarily the effort of the social group, in place of the individual effort, to lessen the incidence of loss on the individual.

We may define social insurance as “a co-operative device, which aims at granting adequate benefits to the insured on the compulsory basis, in times of unemployment, sickness and other emergencies, with a view to ensure a minimum standard of living, out of a fund created out of the tripartite contributions of the workers, employers and the State, and without any means test, and as a matter of right of the insured”.

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In the words of Sir William Beveridge, social insurance can be described as the giving in return for contribution, benefits upto subsistence level, as right and without means tests, so that individual may build freely upon it.

Main Features of Social Insurance:

We can, point out certain well-marked features of social insurance:

(1) It involves the establishment of a common monetary fund out of which all the benefits in cash or kind are paid, and which is generally built up of the contribution of the workers, employers and the State.

(2) The contribution of the workers is merely nominal and is kept at a low level so as not to exceed their paying capacity, whereas the employers and the State provide the major portion of the finances. This means that there is no close correspondence between workers’ own contribution, and the benefits granted to them.

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(3) Benefits are granted as a matter of right and without any means test, so as not to touch the beneficiaries’ sense of self-respect.

(4) Social insurance is now provided on a compulsory basis so that its benefits might reach all the needy persons of the society who are sought to be covered.

(5) The benefits are kept within fixed limits, so as to ensure the maintenance of a minimum standard of living of the beneficiaries during the period of partial or total loss of income.

(6) It has to be borne in mind that social insurance alleviates the sufferings of the individual from the particular event, but, it does not prevent it. As a matter of fact, when prevention is impossible, or nearly so, that insurance has its greatest appeal.

Characteristics of Social Insurance:

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1. A common fund is established by employer, State and the workers out of which all the benefits in cash or kind are paid.

2. The contribution of the workers is nominal which generally does not exceed their paying capacity, whereas the employers and the State provide the major portion of the finances.

3. The object of the benefits is to ensure the maintenance of a minimum standard of living to the beneficiaries during the period of partial or total loss of income.

4. Benefits are granted as a matter of right and without any means test, thus, they do not touch the self-respect of the beneficiaries.

5. It is provided on compulsory basis so that its benefit might reach to all the needy persons of the society who are sought to be covered by the scheme.

6. Lastly, social insurance reduces the sufferings arising out of the contingencies faced by individual contingencies which he cannot prevent.

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.

Moreover, commercial insurances do not have for its object the maintenance of a minimum standard of living, which is the only inspiring motive of social insurance. Besides, social insurance is undertaken to meet a chain of contingencies of diverse nature and intensity, while commercial insurance provides against an individual risk only.

Social insurance is different from commercial insurance, for the latter is voluntary and is meant for the better-paid sections of the society, and its benefits are in proportion to the premium paid; it offers protection only against individual risks and does not aim at providing a minimum standard of living.

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Thus, commercial insurance is voluntary whereas social insurance is compulsory. In commercial insurance the benefits are given according to the premium paid just as the risks are covered under LIC policies, while in social insurance the benefits received by the workers are much larger than their contribution. Moreover, social insurance has the object of maintaining a minimum standard of living while in commercial insurance the object is to cover the risk of those individuals who pay the premium.

It is, thus, obvious that, the ideals of social insurance are based on human dignity and social justice while that of commercial insurance are on means tests. Besides, social insurance is undertaken to meet a chain of contingencies of diverse nature and intensity, while commercial insurance provides security against an individual’s risk.

Social Insurance and Social Assistances:

Social insurance is also somewhat different from social assistance. A social assistance scheme is a device according to which benefits are given as a legal right to workers, fulfilling prescribed conditions, by the State out of its own resources. Thus, social assistance is supplemental rather than substitutive to social insurance.

Both go side by side. But the difference is that social assistance is purely a Government affair, while social insurance is only partly financed by the State. Social insurance is granted to those who pay a contribution, whereas social assistance is given gratis.

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Besides, social insurance does not insist upon a means test and benefits are granted without it, whereas social assistance is given only if certain prescribed conditions are satisfied. Then, the word insurance, in the term ‘Social insurance’, implies the preservation of the contributory principle which is absent in the assistance. Similarly, we can say that the word social makes a difference from commercial insurance.

It may also be seen that social insurance ranges between social assistance and commercial insurance. In social assistance the help is gratis to the needy and is given by the State or the community, while commercial insurance is purely a private contract. Social insurance requires contributions both from the State as well as the insured and thus, is mid-way between the two.

Social Insurance:

Shri K.N. Vaid defined social insurance as the, “giving, in return for contribution, benefits upto subsistence level, as of right and without means test so that an individual may build freely upon it. Thus, social insurance implies that it is compulsory and that men stand together with their fellows.”

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Social Insurance has also been defined as “a cooperative device which aims at granting adequate benefits to the insured on compulsory basis, in times of unemployment, sickness, and other contingencies with a view to ensure a minimum standard of living, out of a fund created out of the tripartite contributions of the workers, employers and State.”

While social assistance is purely a Government affair and financed wholly from the general revenues of the State. Social security includes both social assistance and social insurance.