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Thursday, June 14, 2007

Social and private Insurance

What is social insurance?

It is an compulsory insurance scheme provided by the state and covers a defined group of people (eg citizens or permanent residents). The cost of the scheme can be fully paid by compulsory contributions or partly funded by general taxation.

What are the risks that can be covered by social insurance?

Here are some examples:

* unemployment
* sickness
* health care
* injuries
* old age pension

In the past, the governments in many countries were active in providing fairly generous benefits under the umbrella of the welfare state. Due to abuse, the governments scaled back these welfare benefits. They prefered to let the citizens take care of these matters on their own, through private insurance.

The disadvantage of private insurance are:

* it is costly
* some groups of people cannot be covered (due to their existing condition)

We should strike a right balance. Some types of benefits should be covered by social insurance, eg catastropic payments for accidents and costly medical treatment, or for living too long. The other payments can be covered by private insurance.

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