Secure Your Employees and Your Business
What is workers compensation insurance?
Workers compensation insurance is an insurance policy that protects your employees if they get injuries and illness resulting from work-related accidents or mishaps. This policy covers medical payments, loss of wages, rehabilitation costs, as well as death benefits.
Often known as workers comp, the plan stands on a ‘no-fault’ principle. To clarify, the employees do not have to prove an employer’s fault for the accident to receive compensation. In exchange of the coverage, the injured employee gives up the right to sue the employer for the incurred damages. Hence, workers compensation protects not only your employees but also your business from hefty costs from lawsuits.
Hence, if you run a business with employees, purchasing a workers compensation insurance is a necessity, not just because it is mandatory by law. Likewise, the statistics of workplace injuries speak for themselves.
In this article
According to the National Academy of Social Insurance‘s 2017 data report on workers compensation, total workers comp benefits resulted to $62 billion, $31.2 billion in medical treatment, and $30.8 billion of cash benefits, respectively. Similarly, the amount of covered wages by the policy was $7.78 trillion for 140,397 jobs in total.
Likewise, the Bureau of Labor Statistics reported 900,380 injuries or illnesses that led to a worker miss at least one day of work within private industries in 2018. Therefore, workers compensation insurance is a must to protect your employees from workplace injuries and your business from financial calamities.
What are the state requirements for workers compensation?
Each state has different requirements and laws for workers compensation policies.
In most states, workers compensation is mandatory as per the law for businesses to protect themselves from litigation. So, if your company employs people, purchasing this policy is a must. On the other hand, Texas is the only state where employers have the option to buy the policy.
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Where can I get workers compensation insurance?
In most states, businesses can purchase workers comp policy from a variety of insurance providers. However, monopolistic states do not allow such options as their laws require employers to obtain the plan strictly from the state fund. On the other hand, state funds typically exclude employers’ liability coverage as well as a stop-gap endorsement. Specifically, the only four monopolistic states where businesses cannot meet workers comp obligations with private insurance are:
- North Dakota
Likewise, businesses must also maintain regulations with the Organizational Safety and Health Act. The act clearly states that employers must furnish to all the employees’ employment and the place of employment which are free from recognized hazards that cause death or serious physical harm to the employees.
Important note: Always check with your state’s regulatory body to make sure your business adheres to the requirements of the state as they can change frequently.
What does workers compensation insurance cover?
Workers compensation insurance provides coverage for both the employees and the business owners in case of accidents arising on the job. Furthermore, these coverage can be divided into two parts based on their compulsion:
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Coverage A: Workers compensation insurance
Workers compensation coverage A facilitates benefits to workers under state laws against injuries incurred while performing job-related activities. As per National Safety Council’s data, the top three workplace injuries take place in the order of:
- Overexertion (33.54% of injuries)
- Contact with objects and office equipment (26% of injuries)
- Slips, trips and falls (25.8% of injuries)
Under workers comp coverage, employees receive benefits related to the business’ state laws without any regard to liability. In some industries, workers carry exposures related to occupational hazards and are prone to short- and long-term illnesses. In such cases, workers compensation covers the employee with benefits that include:
- Medical payments
- Loss of wages
- Vocal rehabilitation
- Death benefits
When employees get into an accident at the workplace, workers comp policy covers the medical cost of immediate treatment, such as ambulance fees or admission to emergency rooms. Similarly, it also facilitates payment related to medications, hospital fees, surgery costs, and other medical bills.
According to the Social Security Office of Retirement and Disability Policy‘s Annual Statistical Supplement of 2017, three-fourths of workers compensation cases involve medical payments.
For example, an employee who manages your inventory suffers a severe head injury after tripping over a box of stored goods. In such case, workers comp covers the costs related to ambulance, x-rays, medicines and physical therapy required during the period of recovery.
Employees injured at work can lose salaries as they are not able to return to work until they recover. Hence, workers comp covers for part of the lost wages when employees are in the process of recovery from occupational illness or injuries. Some of the notable injuries include repetitive stress injuries, chronic back problems, and respiratory illness.
Retail business is one of the examples where workplace injuries take place frequently. According to Amtrust‘s Retail Risk Report 2019, the average lost time from retail injury is 24 days out of work. Similarly, top-ten injuries resulted in an average of 64 days of lost time at work.
Most cases of disability benefits as a result of workplace injuries include:
- Temporary disability: Most compensation coverage involving cash payment are for temporary disability. In such cases, workers receive coverage for a portion lost wages until they fully recover and return to work. However, the portion of coverage for lost wages varies from state to state.
- Permanent partial disability: If your employee suffers from permanent impairments even if they obtain maximum medical improvement, the workers will receive permanent disability benefits. But, the system for determining qualified cases for this benefit is complex and varies across jurisdictions of the state.
For instance, an employee gets into an accident while running errands for the company and gets severely injured. As per the diagnosis, the employee needs rest for two months. In support of that, workers comp covers part of wages that the employee could have earned in the lost time at work as a temporary disability benefit.
In cases where employees are unable to return to the job because of permanent disabilities, workers compensation coverage pays for the training required for you to work in other fields. Following benefits include schooling reimbursement and training expenses that are needed to prepare employees.
Workers compensation coverage provides benefits in cases of death of employees caused by fatal workplace accidents. The policy offers benefits to the family of the deceased employee. But, these benefits can range from funeral costs to long term income replacement.
Coverage B: Employers’ liability insurance
Employers’ liability coverage protects the business owners when an employee files a negligence lawsuit against them for injuries that are not compensated by state laws.
Although, workers compensation coverage A only protects employers with costs incurred due to workplace accidents and is limited to statutory benefits. However, employers can still face lawsuits from employees for additional damages caused by their negligence. This coverage pays for legal expenses incurred during the litigation process, which include:
- Court fees
- Attorney’s fees
- Cost of settlement
The type of protection for employers under this coverage are:
Although employees give up the right to sue the employer for workplace injuries directly, they can still file a lawsuit against a third party. Similarly,third-party lawsuits can often affect your business indirectly as the liabilities can end up reverting to the employer.
For instance, an employee injured by using a machine at your workplace can sue the manufacturer. With complications arising from business contracts, the manufacturer of the equipment can file a lawsuit against your company.
Dual capacity suit:
In case the employee suffers injury by using the business’ product or service, they can claim benefits from coverage A. Likewise, they can also file a lawsuit against the employer as a product liability insurance claim.
Loss of consortium:
Injured employees can sue the employers if they cannot perform home or childcare services/duties due to workplace injuries like obtaining excessive stress from work.
Consequential bodily injury:
Employees can file a claim against the employer for bodily injury or illness of family members caused due to the employee’s working conditions.
However, monopolistic states do not offer employers’ liability coverage in their worker’s compensation policies.
Common endorsements of workers compensation insurance
As a part of the insurance contract, businesses can attach endorsements to add, and modify coverage to the policy according to their needs. Some of the common endorsements that can be included in workers compensation policy are:
Waiver of subrogation
A waiver of subrogation is a clause in the insurance contract that limits insurance companies to file claims against the party at fault, on behalf of the insured. Certainly, adding a waiver of subrogation to workers compensation policy eliminates the right to sue the employer and their insurance company.
For instance, if you run a contracting business and a subcontractor suffers an injury at the site leading to a broken leg. Certainly, the sub-contractor’s insurance carrier will provide benefits to the injured employee and later can file a lawsuit against your business to recover the loss amount. Meanwhile, adding a waiver of subrogation included in your worker’s compensation policy will not allow the sub-contractor’s insurance carrier to pursue a lawsuit against your business.
In monopolistic states, employers can only purchase workers comp insurance from state-run funds where the policy does not include employers’ liability insurance. Adding stop-gap endorsement with private insurance carriers can fill the coverage gap. Thus, employers in a monopolistic state must add this endorsement if they operate in other states (non-monopolistic states) to comply with the statutory obligations.
Voluntary compensation endorsement
Voluntary compensation endorsement extends the workers comp benefits to employees who are ineligible for the policy to protect employers from lawsuits.
If your business hires independent contractors who are exposed to work-injuries, there is a high chance your business can get sued for the accidents. In order to avoid such lawsuits, you can add this endorsement to provide benefits to such employees so that you can prevent such litigations.
Certainly, the need for adding an endorsement differs with the nature of your business, and the state requirements. Keep in mind to conduct a complete assessment of the risks related to your workforce while adding endorsements for your policy.
What are the workers compensation exemptions?
Each state has a different workers compensation exemption law. These exemptions include jobs like independent contractors, self- employed, undocumented workers, maritime workers, and volunteers. Here are some standard exemptions of workers compensation:
- Involvement of drugs and alcohol: If any damage occurs when the employee is intoxicated, the provision for benefits do not exist. Likewise, most states demand drug and alcohol testing for injured employees.
- Policy violations: Workers compensation policies do not consider any injuries that happened due to misconduct. For instance, these violations include intentional harm, non-compliance of health and safety regulations, and discrimination against any employee.
- Injuries not related to work: The policy does not cover any non-work-related activities that injure an employee. Such actions include fighting, recreational activity, and commuting from and to work.
Types of insurance that include
workers compensation insurance policy
Workers compensation is included in almost all industry-specific insurance packages for businesses having employees. These include:
- Contractors insurance
- Landscaping insurance
- Handyman insurance
- General contractor insurance
- Lawyers insurance
- Accountant insurance
- Farm insurance
- Church insurance
- Entertainment insurance
- Beauty insurance
- Construction Insurance
- Engineer Insurance
- Truck Insurance
- Art insurance
- Food business insurance
- Restaurant insurance
- Food Truck insurance
- Hotel insurance
- Consultant insurance
- Photography insurance
- Personal trainer insurance
- Pet business insurance
- Nonprofit insurance
- Nursing insurance
- Gas station insurance
How much does workers comp insurance cost?
Workers compensation costs differ on a wide variety of factors. Since, it depends upon the underwriting guidelines of the insurer as well the risks associated with the business. Likewise, there is no set premium on workers compensation policy. Following are some of the known factors related to determine workers comp rates:
- Class codes of the industry
- State regulations
- Annual payroll
- Nature of employees’ work
- Claims history
The premiums for workers compensation require industry classification code and annual payroll. Most states use classification codes of the National Council on Compensation Insurance. However, the classification code’s basis is the broad categories of services your company provides and the nature of work, both employer and employee.
Providing the right information about your company is a must to choose the correct code that reflects your operations and the kind of coverage your company needs.
FAQs about workers compensation insurance
Are all types of employees covered by workers compensation insurance?
Workers compensation laws vary with every state, and not all states require companies to have the policy. As per an article by Workplace Fairness, state laws also have exclusions to certain types of workers like independent contractors, agricultural employees, seasonal employees, and casual workers. Hence, employer’s responsibility for providing the coverage depends upon the number of employees, nature of the work for both the employers and the employees.
What is the difference between workers compensation and general liability insurance?
Both workers compensation insurance and general liability insurance can cover medical costs from injuries at the workplace. However, general liability insurance provides coverage to third-party injuries. Whereas, purchasing a worker’s compensation insurance will protect your employees from workplace injuries and illness.
Does workers compensation cover workplace illnesses that related to mental health?
As per an article published by HG.org, one of the notable online law and government information sites, workers compensation may cover mental illness due to work factors like stress, anxiety, depression of post-traumatic stress disorder. However, proving such illness is very complex than claiming injuries as these illnesses result over time and not in a single event. In most cases, claimant has to be able to demonstrate causal relationship between mental illness and workplace factors which is very difficult.
Do all workers compensation policies include employer's liability insurance?
Unless you purchase insurance from a monopolistic state fund, workers compensation insurance include employers’ liability coverage. On the ther hand, if you buy the plan from the state-fund, you can add an endorsement for employers’ liability coverage from a private insurer.
Can businesses add coverages to the purchased workers comp policy in the future?
Businesses will need more coverages in case they expand their operations, hire more employees- ultimately dealing with more risks. Once, your business grows and employs more workers, your workers compensation premiums are bound to change. You can easily add insurance for more coverages in such cases.
How do industry class codes affect your workers compensation premium?
The cost of workers compensation differs from the nature of business and the type of work done by the employees. It means that employers should make sure their business’ class code is classified correctly. So, if your company does not match the class codes, the calculations for your premium will be inaccurate, and your business can face legal penalties.
How do I buy workers compensation policy for my business?
Businesses have a diverse spectrum of exposures and require a personalized policy to get the right coverage. Workers compensation policy requires close attention to detail to cover all the risks as they differ with the nature of the business and its employees.
Hence, to get the best workers compensation policy for your business, you need an expert to assess all your risks, a variety of carrier options, and the right coverages.
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