Pensions, health care cover and other insurance

Main benefits and insurance for employees

Pensions, health care cover and other insurance

There are certain details regarding insurance and benefits that employees should be aware of when working in Chile. An employee must be insured, and the information below outlines the necessities.


Two general pension systems exist in Chile. The older of the two is directed by an entity responsible for grouping the numerous government pension funds and provides health, pension and certain other social security benefits. Employers have the responsibility of withholding and paying into the fund employees’ contributions, which represent a fixed percentage of total remuneration. The pension payments are set by the government.

According to the new system, introduced in 1980, employees who join the labour force are required to contribute to the private system.

Employees’ contributions to the private pension fund are also withheld from monthly remunerations, and the employee can choose to make limited additional contributions to the fund. Moreover, employers can voluntarily make tax-free contributions to their employees’ accounts.

Upon retirement, the employee can elect to receive a lump-sum payment, a pension, or an interim combination of the two, all of which are based on the amounts the employee has contributed to the fund. The lump sum can only be used to purchase an annuity from an insurance company.

Contributions to either the government or private pension plans are only made by employees and self-employed individuals. Employee contributions are deductible from taxable income in computing taxable income taxes due.

Employers’ only pension-related responsibility is to withhold and pay employees’ contributions.

Health care benefits

Employees and self-employed individuals pay 7% of their salaries a month, up to 60 UF, for health insurance. Employers only have to withhold and pay the insurance.

If employees are affiliated with one of the government pension plans, the health insurance premium is collected by the pension plan and paid to the State Health Fund  (Fondo Nacional de Salud - FONASA).

Employees affiliated with one of the private pension plans can opt to make their contributions either to FONASA or to a private health insurance company (Institución de Salud Provisional - Isapre). Most health insurance plans cover over 80% of medical costs.

Labour-related accident insurance

For labour-related accident insurance (workmen’s compensation), all employers must pay a 0.95% premium on total remunerations capped at 60 UF a month. Depending on the risk associated with the employee’s activity, additional contributions at varying rates may be required up to a maximum of 3.4%. The employer’s track record can cause the rate to decrease.

Unemployment insurance

In Chile, a mandatory unemployment insurance is in place in favour of employees, governed by the Labour Code. The insurance is funded by an obligatory contribution by the employee of 0.6% plus the employer’s mandatory contribution of 2.4%. Both are calculated according to the employee’s taxable income capped at 90 UF.

Severance indemnity payments

The Chilean labour law for severance indemnity applies to employees that are dismissed for reasons other than serious misconduct. Legally, an employer must give an employee a justified reason for a dismissal. The relevant benefit is equivalent to one month’s salary for each year of service, with a maximum of eleven months, and is based on the employee’s most recent salary level up to a maximum of 90 UF a month. Generally, the payment is given at the end of the labour relationship, but in some cases parties may agree to advanced payments of amounts accrued. If the indemnity is not paid, employees have access to the Labour Courts who may impose fines on the employer.

In general, the employee is exempt from paying tax on the payments, and instead, the tax is deductible for the company.

Profit-sharing payments

Companies in Chile are lawfully required to distribute profits, unless the employee’s labour contract specifically includes a different arrangement.

Further reading

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