National Insurance: Definition, Characteristics, Process

The National insurance scheme is a social security scheme run by the government of a country for the required financial security of its citizens, more particularly for the persons who are employed in various organizations or self-employed or non-employed.

National insurance has many advantages for attaining a just socio-economic system.

Most developed countries have a scheme as such in one form or the other, and the students would do well with preliminary knowledge on the subject.

The following studies will consider the system practiced in the United Kingdom as it is thought to be in the best possible form.

Characteristics of National Insurance

1. The government administers the scheme, and, therefore, there is no entry for private insurers.
2. There are no policies of insurance, and the scheme is managed by stamping cards. The government issues these cards to each individual coming under the scheme, and the cards remain with the individuals.
3. The premium (specifically known as the contribution) is normally deducted by the employers at the source and credited to the appropriate government authority. In the case of self-employed or non-employed persons, it is their responsibility to get their cards stamped, and the stamps were available at post offices.
4. The solvency of the scheme is guaranteed by the state.

Applicability of the National Insurance Scheme

The scheme applies compulsorily to all in the following categories;

• Class 1 – Employed persons.
• Class 2 – Self-employed persons.
• Class 3 – Non-employed persons.

Within each class, no differentiation is made according to the risk involved and, therefore, there is no scope for selective underwriting.

Each class is entitled to different rates of benefit.

Contribution for National Insurance

The rates of contribution (premium) are at standard rates for all persons in a particular class. But the rate varies from class to class.

Similarly, there is a standard rate of benefit for each class, and the rate varies from class to class. Only the state may vary rates of contribution, benefits, and conditions.

Cover Provided by National Insurance

Under such a scheme, the cover is mainly provided in respect of the:

1. Unemployment benefits are payable weekly.
2. Industrial injuries or sickness leading to disabilities
3. Free medical provision under Health Service.
4. Pension.
5. Maternity grants an allowance.
6. Family allowances are payable weekly for dependent children, excluding the first issue.
7. Death grant.