Comparison between social insurance and commercial insurance in Vietnam

Comparison between social insurance and commercial insurance in Vietnam - Image from Internet

According to the regulations in the "Guidelines on the key content of propaganda" attached to Official Dispatch 3758/BHXH-TT in 2017 on strengthening the propaganda work on social insurance policy issued by the Vietnam Social Insurance Agency, the following regulations are the key differences between social insurance (SI) and life insurance (LI):

First of all, the SI policy is a humane policy of the Vietnam Communist Party and the State to ensure that all citizens have the right to enjoy social security. As prescribed, workers when working are covered by their employers for SI to enjoy all the regimes of sick leave, maternity leave, occupational accidents and occupational diseases, retirement, and survivorship; those who are 15 years old or older and are not covered by SI paid by their employers are eligible to participate in voluntary SI to enjoy the regimes of retirement and survivorship. This policy is completely different from the type of life insurance. It is very difficult to compare the benefits of life insurance and SI in detail because life insurance has many different packages of benefits. Basically, there are some key differences as follows:

First, the biggest difference is in the purpose: Social insurance (SI) is a non-profit insurance, while life insurance is for profit. This means that the profit of life insurance comes from the money of the policyholders. It is important to note that the commission for life insurance agents is very high (from 20 to 25% in the first year and decreases gradually in subsequent years but not less than 5%).

Second, in terms of eligibility and premium: The eligible population for SI is Vietnamese citizens aged 15 years and over who are not subject to compulsory SI with a fixed premium of 22% for the retirement and survivorship fund. However, for life insurance, although the packages of benefits seem attractive at first glance, they have very strict requirements on age and health at the time of contract signing to reduce risk.

Third, in terms of benefits:

- The money paid into the SI fund is adjusted up each year according to the consumer price index (CPI) as stipulated by the government. The CPI has increased by an average of 8.1% per year since 2008. Life insurance, on the other hand, is calculated based on market interest rates.

- The time already paid into SI is recognized for SI benefits even if the policyholder dies or is injured for any reason. However, life insurance companies are not required to pay out the insurance money in some cases, such as death by suicide within two years of the first payment of the premium or from the date of continuation of the contract; death or permanent disability due to the intentional fault of the policyholder or the beneficiary; or death of the insured due to execution.

- The amount of the pension is adjusted periodically according to the CPI and economic growth. In fact, the government has adjusted the pension almost every year. For the period from 2003 to the present, the government has adjusted the pension several times with an increase of about 7.5 to 9.3 times (depending on the group of beneficiaries) compared to the pension at the time of 2002. In addition, throughout the entire period of receiving the pension, the workers are paid by the SI fund to issue a health insurance card and enjoy the benefits of medical examination and treatment equally with everyone else regardless of the premium amount, type of disease, etc. When the beneficiary dies, the person who takes care of the funeral is entitled to a funeral allowance of 10 months of the basic salary at the time of death, and the dependents are entitled to the survivorship benefit (monthly or one-time allowance). This is a major advantage of SI. For life insurance, the benefits are enjoyed according to the contract signed. In addition, in the event of a risk that the insurance company goes bankrupt, the policyholder may lose all benefits.

In conclusion, people who participate in the Social Insurance (SI) program when receiving a pension enjoy many benefits, and the pension itself is a lifeline for workers when they are old and no longer able to work to earn an income. This is a major advantage of SI over life insurance.

Above are differences between social insurance and commercial insurance in Vietnam. Please refer to the Official Dispatch 3758/BHXH-TT in 2017 for further information.

Best regards!