NUTS AND BOLTS OF SOCIAL INSURANCE IN INDIA

Abstract

Social security in India was traditionally taken care of by the set up of family/community in general.  With the rapid industrialization/urbanization beginning during the early 20^th century resulting to an extent the breakup of the family set up the need for institutionalized and State-cum-society regulated social security arrangement has been felt necessary.  The problem has been aggravated further with the ageing of the society and embarking towards market economy. Social insurance is considered to be a type of social security. Social insurance is a public insurance program that provides protection against various economic risks (e.g., loss of income due to sickness, old age, or unemployment). The implementation of social insurance schemes helps the unorganized employee and weaker section people for their joyful life especially the during the old age and retirement time.

Nuts and Bolts of Social Insurance in India

Introduction

Social Insurance is a dynamic concept of modern age which influences social as well as economic policy. It is the security that the state furnishes against the risks which as individual of small means cannot stand up by himself or even in private combination with his fellows. In any society no individual is capable of and versatile as to satisfy all his needs. Everyone is dependent upon others for the fulfillment of some or other needs. In particulars, the aged, helpless, the unemployed and the ones suffering from difficulty chronic diseases are badly in need of help from others. The pregnant women need assistance during last stage of pregnancy and for the delivery of the child. In case such persons are not given adequate help and assistance chaotic conditions will result in the society and the social order will be upset. More over when the aged, the sick, the pregnant and the other helpless persons have rendered help to other then they were able bodies, young, healthy and strong, the society owes them a debt for their earlier services and they must receive social assistance and social insurance in the hour of their need. This article highlights the social insurance programme in detail.

Statement of the Problem

India has a very basic social security system catering to a fairly small percentage of the country’s workforce. Traditionally, Indians relied on their extended families for support in the event of illness or other misfortunes. However, due to migration, urbanization, and higher social mobility, family bonds are less tight and family units much smaller than they used to be. Every person is faced with social problems and risks at some time in his life span due to risks associated with sickness, accident, unemployment, disability, maternity and old age. So far, neither the state nor private insurance companies have quite stepped up to fill this gap. The Social Security Policies are intended to mitigate or provide cover  the  costs  for  these  problems  and  risks  faced  by persons exposed  to these situations. Social insurance aims to help individuals in such time of old age, disability, and support in case the primary breadwinner dies.

Social Security

Social security refers to protection provided by the society to its members against providential mishaps over which a person has no control. The underlying philosophy of social security is that the State shall make itself responsible for ensuring a minimum standard of material welfare to all its citizens on a basis wide enough to cover all the main contingencies of life. In other sense, social security is primarily an instrument of social and economic justice.

Social security is a very comprehensive term. The two important means of providing social security are

1. Social insurance and
2. Social assistance.

Thus, it may be called to be the two faces of the same coin. Both of these are part of a social security system.

Social Insurance

Social insurance is a co-operative device which aims at granting adequate benefits to the insured on the compulsory basis in time of unemployment, sickness and other emergencies.

Social Insurance is 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”.

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.
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.

Characteristics of Social Insurance

1. Social insurance is financed by contributions which are normally shared between employers and workers, with perhaps, state participation in the form of a supplementary contribution or other subsidy from the general revenue.
2. Participation is compulsory with few exceptions.
3. Contributions are accumulated in special funds out of which benefits are paid.
4. Surplus funds not needed to pay, current benefits are invested to earn further income.
5. A person’s right to benefit is secured by his contribution record without any test of need or means.
6. The contribution and benefit rates are often related to what the person is or has been earning.

Social Insurance Vs Commercial Insurance

Social insurance is fundamentally differ from Commercial Insurance. The main differences are as follows

1. Commercial insurance is necessarily voluntary, whereas social insurance is generally compulsory.
2. 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.
3. The inspiring motive of social insurance is the maintenance of minimum standard of living whereas commercial insurance does not aim at providing a minimum standard of living.
4. Moreover, while commercial insurance provides against an individual’s risk only, Social Insurance is undertaken to meet a chain of contingencies of diverse nature and intensity.

On overview of Social Insurance scheme in India

Government of India has implemented several social security schemes with an aim to reach out and support its citizen. The following are the important social insurance programme implemented by the Indian Government for the betterment of the unorganized worker and poor people.

1. Sukanya Samriddhi Yojana

Reinforcing the idea “Save for every girl child in India”., Prime Minister Narendra Modi launched ‘Sukanya Samriddhi Account Scheme’, a small savings scheme as a part of the ‘Beti Bachao Beti Padhao’ campaign. This scheme will encourage parents to save for the education and future of their girl child. This yojana is to facilitate them proper education and care free marriage expenses.

Key features

1. Sukanya Samriddhi Account can be opened only by parents or legal guardians for upto two girl children.
2. This account can be opened for a girl child till she attains the age of 10. A minimum contribution of Rs. 1000 per account has to be deposited per year. A maximum of Rs.1, 50,000 per account can be deposited.
3. There is no limit in the number of deposits in a financial year. The money can be deposited through cash, cheque or draft.
4. The guardian is expected to deposit amount in the account only till the completion of 14 years. No deposits after that is required till the maturity of the account.
5. The scheme is offering an interest rate of 9.1% per year. The interest will be compounded yearly and directly credited to the account.
6. The account can be closed only after the child turns 21. If the money is not withdrawn even after that, it will continue to earn the interest.
7. Moreover the investment (up to Rs.1.5 lakhs) under the scheme, all the payments including the interest payment and the total maturity amount will be fully exempted from taxation.

2. Pradhan Mantri Jan Dhan Yojana

Pradhan Mantri Jan-Dhan Yojana (PMJDY) is National Mission for Financial Inclusion to ensure access to financial services, namely, Banking/ Savings & Deposit Accounts, Remittance, Credit, Insurance, Pension in an affordable manner.

This account can be opened in any bank branch or Business Correspondent (Bank Mitr) outlet. Accounts opened under PMJDY are being opened with Zero balance. However, if the account-holder wishes to get cheque book, he/she will have to fulfill minimum balance criteria.

Key elements

1.      Account holders will be provided bank accounts with no minimum balance.

2.      RuPay debit cards will be issued.

3.      Accidental insurance cover of Rs.1 lakh

4.      The scheme provide life cover of Rs. 30,000/- payable on death of the beneficiary, subject to fulfillment of the eligibility condition.

5.      After six months of opening of the bank account, holders will be eligible for Rs. 5,000 overdraft from the bank.

6.      With the introduction of new technology introduced by National Payments Corporation of India (NPCI), a person can transfer funds, check balance through a normal phone which was earlier limited only to smart phones.

3. Pradhan Mantri Suraksha Bima Yojana (PMSBY)

Accidents take place on a daily basis in India and although the rich and the middle class can afford to take accidental insurance, the poor find it difficult to take accidental insurance as the premium payment is too high. The government realised this problem and announced Pradhan Mantri Suraksha Bima Yojana as a social security scheme that will provide compensation to the deceased’s family. The premium payment is low and affordable by the poor.

Pradhan Mantri Suraksha Bima Yojana is Indian Government’s accidental insurance cover which was announced in the 2015 Budget. This scheme was launched to provide personal accident insurance to the high risk category such as mechanics, labourers, truck drivers which involves a lot of travelling. It is also one of the cheapest insurance cover. The scheme also covers both partial and permanent disability cover.

Key Features

1. An accident insurance scheme, PMSBY offers a one-year accidental death and disability cover.
2. The insurance premium of PMSBY scheme is Rs.12 per annum for each member.
3. It can be renewed annually (i.e) the premium amount will be deducted from the bank savings account of the policyholder via auto-debit facility every June.
4. Individuals between 18 to 70 years of age can apply for PMSBY scheme.
5. It provides the risk coverage of Rs 2 lakh for accidental death and permanent total disability, and Rs 1 lakh for permanent partial disability.
6. It is not a Mediclaim scheme, i.e., there is no provision for reimbursement of hospitalisation expenses following accident, resulting in death or disability.

4. Atal Pension Yojana

In an effort to help the unorganized section of the Indian society, the Government of India introduced the “Atal Pension Yojana” in June, 2015. The Atal Pension Yojana is administered by the PFRDA (Pension Fund Regulatory and Development Authority) under the National Pension System (NPS). The scheme was launched to encourage individuals from the weaker section to opt for pension, which would immensely benefit them during their old age. The Atal Pension Yojana scheme can also be taken by individuals working in private sector organizations or by anyone who is self-employed.

The Atal Pension Yojana scheme helps the weaker section to save up for their old age and get a guaranteed monthly pension amount. Under this plan, the subscriber will receive a fixed pension after the age of 60, depending on his contribution amount and tenure.

Atal Pension Yojana (APY) is a formal pension scheme which would benefit people when they are 60 years old. This scheme is mainly for workers in unorganized sector, which will encourage the habit of saving for their retirement. The scheme will be administered by the Pension Fund Regulatory and Development Authority (PFRDA) and replace the previous government’s Swavalamban Yojana NPS Life.

Key Features

1. The subscribers who will join the scheme would receive the fixed pension of Rs. 1,000.00 per month, Rs. 2,000.00 per month, Rs. 3,000.00 per month, Rs. 4,000.00 per month, Rs. 5,000.00 per month, at the age of 60 years, depending on their contributions.
2. The minimum age of joining this scheme is 18 years and maximum age is 40 years.
3. Under the scheme, a subscriber can contribute for minimum period of 20 years or more and pension payment will start at the age of 60 years.
4. Under the scheme government of India will co-contribute 50% of the subscriber’s contribution or Rs. 1,000.00 per annum, whichever is lower, to each eligible subscriber account, for a period of 5 years.
5. All bank account holders under the eligible category may join the scheme with auto-debit facility to accounts, leading to reduction in contribution collection of charges.
6. Subscribers who will join the scheme before December 31, 2015, can avail the benefit of government’s co-contribution under the scheme.

5. Pradhan Mantri Jeevan Jyoti Bima Yojana

The central government of India has launched a new life insurance scheme, Pradhan Mantri Jeevan Jyoti Bima Yojana, for the growth of the poor and low income section of society. As a pure term insurance plan, Pradhan Mantri Jeevan Jyoti Bima Yojana, is available for people between the age group of 18- 50 years.

PMJJBY is a renewal term insurance policy that, provides a yearly life insurance coverage of Rs. 2,00,000 in case of the demise of the insured person, at the most affordable premium rate of Rs. 330 per annum.

Salient Features

1. The policy provides life coverage for 1 year.
2. The insured can renew the policy every year.
3. According to one’s own choice, the insured can walk out of the scheme at any time and rejoin it in future.
4. The policy offers a maximum sum assured of Rs2 lakh.
5. As compared to the other term insurance policy the plan offers very low premium rates per year i.e. Rs. 330. Moreover, the premium rate is equal for all age groups ranging from 18 to 50 years.
6. The claim settlement process offered by the policy is very simple and subscriber friendly.

Conclusion

Social Insurance is considered as one of the dynamic concept of modern age which is influencing social as well as economic policy. As the nuclear missile is the most effective weapon of war, so also social security is the most effective weapon of peace. It is the security that the state furnishes against the risks which as individual of small means cannot stand up by himself or even in private combination with his fellows. It originally signifies the measures during the period when wage earning capacity of a worker is adversely affected during sickness industrially disability, unemployment or old age.

Author

Dr. M.J. Senthil Kumar
Associate Professor, Department of Commerce (UG)
Sri Kaliswari College (Autonomous), Sivakasi 626130.

 Dr. P. Sundara Pandian
Principal,
VHNSN College (Autonomous), Virudhunagar.

 Dr.N.R.Nagarajan
Senior Faculty, Department of Commerce
Sri Kaliswari College (Autonomous), Sivakasi 626130.