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What Is Workers’ Compensation Insurance?
Workers’ Compensation insurance (workers’ comp, workmen comp, workmen compensation, or even shortened to Work Comp) is business insurance coverage for employees who may suffer a work related bodily injury or illness on the job. All business owners need this crucial coverage to protect themselves and their employees. That’s why workers comp is mandated by law in most states!
Workers’ compensation insurance doesn’t just cover employees; it protects the business owner as well. When employees agree to workers’ comp coverage, they waive their right to sue you if they are injured or become ill on the job.
You can find the specific laws for your state by contacting your state department of insurance. Oftentimes, these laws can protect your business even beyond what your insurance policy provides.
What is Covered Under Workers Compensation Insurance?
Here are a few situations typically covered by Workers’ Comp benefits:
- Job-related injuries
- Injuries from repetitive stress (like carpal tunnel syndrome)
- Illness (like breathing problems from exposure)
- Medical and rehabilitation costs for work-related health issues or injuries
- Disability caused by a workplace injury
- Death benefits to families
Workers compensation policies will also help pay for lost wages (or a percentage of their typical wage) until the employee can return to work.
What Accidents or Workplace
Injuries are Excluded?
Workers’ comp doesn’t cover every injury or illness. Here are some typical exclusions:
- Accidents while not on the job
- Employer or employee negligence
- Injuries that result from alcohol or illicit drug use
- Injuries or sickness that result from breaking company policy
- Self-inflicted injuries
If an injured employee becomes disabled, workers’ comp doesn’t cover the claims; this is when long-term disability comes into play. This and similar benefits must be bought separately.
Some states, like North Dakota, Ohio, and Washington, won’t cover claims if the employee has traveled out of the same state as the employer. Be sure to ask your insurance agent to see if your state includes this coverage.
Examples of Covered and Non-coveredWorkers Comp Claims
Here are a couple of examples of how workers’ comp can protect you and your employees:
- Example #1: As an employee in your local grocery store climbs a ladder to retrieve some merchandise, she loses her balance and falls, breaking her arm. Her workers’ comp policy will cover her medical expenses and any lost wages because it was a work related injury.
- Example #2: Several doctors and nurses in your family-care practice were exposed to the Coronavirus. When you test them, 3 receive a positive diagnosis and one is hospitalized for a few days. As they recover, they must quarantine at home for 2 weeks so they don’t infect others. Workers’ compensation insurance will not only cover the medical expenses, but also the lost wages for the quarantine period.
Who Needs Workers’ Compensation Coverage?
In almost every state, if you have-or plan to have-any employees, you must have workers’ compensation insurance. The specifics differ from state to state.
For example, several US states and territories require that workers’ compensation Insurance be obtained through state workers compensation funds. When buying from a state fund, it’s important to remember that employer’s liability often isn’t covered.
Other states have harsh penalties, fines, and even jail time if you don’t meet the workers’ comp standards set by the state.
Even in the states that don’t require workers’ comp insurance by law, you can still find your business limited without it. Some clients require businesses or contractors to have coverage, and quality employees may pass up jobs with you for a career with another business that offers workers’ comp.
What Businesses Don’t NeedWorkers Compensation Insurance?
There are a few small businesses that might not need workers’ compensation coverage (be sure to check with your agent to see specific regulations for your state). These include:
- Sole proprietors
Health or disability insurance would make more sense in these situations.
Other Types of InsuranceCoverage to Consider
If you own a small company, there are other policies you should consider, and it varies by business:
General Liability Insurance:
This policy covers injuries or medical costs for customers instead of employees. It can also cover property damage or replacement for accidents that occur on your site.
Business Owners Policy:
A business owners policy combines commercial property insurance, general liability coverage, and business interruption insurance. It’s often more affordable than purchasing each policy separately.
Commercial Property Insurance:
If you have a physical business location, this insurance can help cover the cost to repair your building and its contents if they are damaged or destroyed in a fire, natural disaster, or by theft or vandalism. The insurance company will repair the property damage and pay to replace the contents up to the limits of the policy.
Commercial Auto Insurance:
This insurance is a must if you have company vehicles or own an auto-related business.
How Much Does Workers’ Compensation Insurance Cost?
While workers’ comp can cost as little as $85 a month, many factors affect what you’ll pay. The average yearly cost tends to be between $2000 and $3000.
Factors that impact coverage include:
- How many employees you have
- Hazards and risks for your industry
- Your business location
- Workers’ comp claims history
The National Council on Compensation Insurance (NCCI) uses a system to determine rates that assigns a code based on each occupation. Read more about the calculation that’s used in our guide to understanding Workers’ Comp Insurance costs.
What are the Limits on a Workers’ Compensation Insurance Policy?
The limit for each injured employee varies based on your location, size, and risks involved in your sector. While the most basic policy typically has a $100,000 limit, larger staffs and higher-risk jobs often come with higher limits (and higher premiums).
How can I Reduce my Business Insurance Premium?
To keep your premiums as low as possible, start by consulting with the risk-management team at your insurance company. They can help you form a risk-management system that will keep your workers safe and assure your provider that you are doing all you can to prevent an accident that would result in a claim.
Check with your state and provider to make sure that you’ve got all your employees classified correctly. It’s worth the trouble: lumping all of your workers in under the business classification can skyrocket your premiums.
Lastly, don’t neglect maintaining your insurance portfolio. Document risk management programs. Review your worker’s comp policy every year. Keep your insurer updated on any changes and speak with them (or one of our agents) to make sure you’re doing all you can to keep costs down.
FREE Workers’ Compensation Business Insurance Quote
Every small business is unique, but almost every business needs workers’ compensation insurance. We can help you understand your options and translate your needs into affordable coverage. For a competitive quote, just fill out the form at the top of the page and an agent will contact you. Or you can call us at 800-433-5353 for immediate assistance.
Related Articles: Employee Benefits Liability, Employment Practices Liability Insurance
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