Social Insurance

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

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

Social insurance has also been defined as a program where risks are transferred to and pooled by an organization, often governmental, that is legally required to provide certain benefits.

In the U.S., programs that meet these definitions include Social Security, Medicare, the PBGC program, the railroad retirement program and state-sponsored unemployment insurance programs. The Canada Pension Plan (CPP) is also a social insurance program.