Workers’ compensation, commonly referred to as “workers’ comp,” is a government-mandated insurance program that provides benefits to workers who become injured or ill on the job or as a result of the job. It is effectively a disability insurance program for workers, providing cash benefits, healthcare benefits, or both to workers who suffer injury or illness as a direct result of their jobs.
It is your responsibility as a business owner to provide a safe work environment for your employees, but accidents and injuries may still happen. According to the Bureau of Labor Statistics, 2.2 million workers in private industry were injured on the job in 2021.
To protect your staff, workers’ compensation insurance is essential and is even a legal requirement in most states. It provides financial support and medical benefits to employees who are injured or who become sick due to their employment. In addition, it prevents you from paying costly expenses
Overview of workers’ compensation insurance
Workers’ compensation insurance provides coverage for employees who suffer work-related injuries or illnesses. It covers medical expenses, disability benefits, and lost wages for employees who are injured or become ill while performing their job duties.
Most workers’ compensation programs are paid for by private insurers, from premiums paid by the individual employers. Each state has a Workers’ Compensation Board, a state agency that oversees the program and intervenes in disputes.
There are federal workers’ compensation programs that cover federal employees, longshore and harbor workers, and energy employees. Another federal program, the Black Lung Program, handles death and disability benefits for coal miners and their dependents.
Workers’ compensation insurance is typically required by law and helps protect businesses from potential lawsuits by employees seeking compensation for work-related injuries or illnesses. If an employee accepts the benefits of workers’ comp, they relinquish their ability to sue your company for the illness or injury.
Types of workers’ compensation insurance
The lack of federal standards for workers’ compensation has resulted in extremely varied policies for the same kinds of injuries from state to state.
Identical injuries can receive radically different kinds of compensation depending on where a worker resides. A paper by the Occupational Safety and Health Administration (OSHA) flatly calls workers’ compensation a “broken system,” and estimates that 50% of the costs of workplace injury and illness are borne by the individuals who suffer them. Low-wage and immigrant workers often don’t even apply for benefits.
Workers’ Compensation: Coverage A vs. Coverage B
There are two types of workers’ compensation coverage: Coverage A and Coverage B.
- Coverage A includes all of the state-mandated benefits that an injured or ill employee is entitled to receive from the employer’s insurance. It covers salary replacement payments as well as medical care, rehabilitation, and death benefits as necessary. All states except Texas have such benefits, although they vary widely from state to state and many states exclude some employees from eligibility.
- Coverage B pays benefits that exceed the minimums required by Coverage A. They usually are paid only as the result of a successful lawsuit brought by the employee for negligence or other misconduct by the employer.
Workers who accept workers’ compensation generally waive the right to sue their employers, agreeing to a no-fault contract in doing so. However, state legislation and court rulings in a number of states have restored the employees’ right to sue in various strictly defined circumstances.
Thus, an employer may opt to purchase a policy that combines Coverage A and Coverage B
Types of insurance policies under workers’ compensation insurance
Life insurance
You and any other members of your business can acquire a life insurance policy. This is similar to key person insurance, providing a beneficiary with financial assistance in the event of your death. Having life insurance in place can give you peace of mind that your death will not burden your family or business partners financially.
Key person insurance
Businesses often have a challenging time continuing operations when founders die. This is why it is essential for entrepreneurs to create a business continuity plan so the company can still thrive if the worst happens.
Also known as key man insurance or key woman insurance, key person insurance helps replace lost revenue due to the death of a key executive of your business. Your business pays the premium while the key person is alive and then collects a death benefit after their passing.
These benefits can be essential to continuing the operation of your business or finding someone to fill their role.
Disability income insurance
Disability insurance is similar to workers’ comp in that it temporarily covers an employee’s lost wages if they are unable to work because of a disability. However, disability insurance will cover injuries or illnesses that occurred on or off the job, whereas workers’ comp only covers work-related issues.
This type of insurance is also sometimes required by law.
Workers’ compensation benefits
Requirements for workers’ compensation vary from state to state, and not all employees are covered in some states. Some states, for example, exclude small businesses from the mandate for coverage. Others have different requirements for various industries.
Salary replacement
The salary replacement paid to an employee under workers’ compensation is typically less than the person’s full salary. The most generous programs pay about two-thirds of the person’s gross salary.
Workers’ compensation benefits are not usually taxable at the state or federal level, compensating for much of the lost income. Taxes may be due to recipients who also have income from the Social Security Disability or Supplemental Security Income programs.4
Recipients waive the right to sue
By agreeing to receive workers’ compensation, workers give up their right to sue their employer for negligence.
This compensation bargain is intended to protect both workers and employers. Workers are giving up further recourse in exchange for guaranteed compensation, while employers consent to a degree of liability while avoiding the potentially greater cost of a negligence lawsuit.
Healthcare cost reimbursement and survivor benefits
Most compensation plans offer coverage of medical expenses only related to injuries incurred as a direct result of employment. For example, a construction worker could claim compensation for an injury suffered in a fall from scaffolding, but not for an injury incurred while driving to the job site.
In other situations, workers can receive the equivalent of sick pay while they are on medical leave. If an employee dies as a result of a work-related incident, workers’ compensation makes payments to the worker’s dependents.
Independent contractor exception
In most states, only regular employees are eligible for workers’ compensation; independent contractors are not. That was one of the main points of contention in the debate over a California ballot measure that sought to extend employee benefits to drivers for ride-sharing apps like Uber and Lyft.
Like the so-called gig economy, the issue of workers’ compensation and other benefits for contract workers isn’t going away. In 2020, about 17 million Americans were working full-time as contractors and more than 34 million worked part-time or occasionally as contractors.
Best workers’ compensation insurance companies
CoverWallet
For micro-businesses — companies with fewer than 10 employers — CoverWallet is an excellent option for workers’ compensation insurance. It allows you to get coverage for just one employee if you wish, even if that worker is part-time. You can also bundle workers’ compensation insurance with professional or general liability coverage, too.
Depending on where you live, your industry, your past claims history, and other factors of your business, you may be able to get an instant quote online. However, that may not be an option for everyone, and some users may have to call and speak to a representative to get an insurance quote.
When you submit your information, CoverWallet will match you with one of its insurance partners. You may be eligible for pay-as-you-go premiums, rather than making upfront payments based on projected payroll. If satisfied with your quote, you can contact CoverWallet to activate your policy and get covered right away.
Nationwide
Nationwide offers workers’ compensation insurance for small and large businesses. It has insurance options specifically designed for construction and contracting businesses that can be bundled along with workers’ compensation coverage. These include general liability, business auto, construction equipment insurance, and equipment breakdown coverage.
As a Nationwide customer, you have access to a suite of free business resources, including fleet safety seminars, courses on preventing slips and falls, and tips on handling payroll and taxes.
While some users can get a quote online, rates and discounts can vary by location and area of specialization. To get an exact quote, you may want to call Nationwide directly and speak with a representative.
biBERK
biBERK Insurance Services combines decades of experience with a technology-driven approach to insurance, allowing you to get a policy within minutes. Business owners can use biBERK’s platform to get a price quote and purchase workers’ compensation insurance entirely online, without ever having to talk to a representative or go through extra hurdles.
Your exact quote will vary based on factors like industry, location, and coverage limits.
biBERK isn’t an insurance broker or middleman; it insures businesses directly, so it’s able to offer lower rates than some other companies. According to the company, its rates are up to 20% less than you can get with policies from other companies.
It does offer other insurance products, such as general liability, professional liability, and umbrella insurance. However, it does not offer any discounts for bundling policies.
Progressive
Progressive is an excellent choice for professional offices for workers’ compensation because of its reputation, the ability to easily combine other coverages and great prices. Its policies are also affordable. According to the company, the average cost of a new policy starts at $46 per month for professional liability coverage and $86 per month for workers’ compensation insurance.
With Progressive, you can bundle workers’ compensation insurance with professional liability insurance, general liability, commercial auto insurance, and a business owner’s policy. You can change and adjust your policy at any time.
However, you should know that your workers’ compensation policy isn’t directly through Progressive. Instead, Progressive will connect you with a third-party carrier. Each carrier has its own payment terms and requirements, so you may not have a pay-as-you-go option, and you may have to make a down payment to activate your policy.
The Hartford
The Hartford is well-known for its service and reliability. In fact, it’s the second-largest workers’ compensation insurer in the country based on direct written premiums, with experience catering to healthcare professionals and insuring over 105,000 outpatient small businesses nationwide.
Workers’ compensation insurance from The Hartford includes a preferred medical provider network and over 65,000 U.S. pharmacies where your workers can get necessary care. They’ll have access to nurse case managers to help coordinate their care, and you can take advantage of pay-as-you-go billing options.
The Hartford offers multiple insurance products, including general liability and cyber insurance. However, it does not have medical malpractice insurance, so you’ll have to work with another company to get coverage.
How much does workers’ compensation cost?
The cost of workers’ compensation insurance varies by state, as do the mandated benefits. There also are different rates depending on whether the employees covered are performing low-risk or high-risk jobs.
The fees for the insurance are based on the company’s payroll numbers.
How to apply for workers’ compensation
The rules for applying for workers’ compensation vary by state. In general, a worker with a job-related injury or illness should:
- Write down the details of the injury or illness in detail, with photos and the names of witnesses when possible.
- Report the injury or illness to your employer. The employer should take it from there, filing your claim with the insurer.
You can follow through with the employer’s insurance company to make sure that a claim was filed. If your claim is denied, you can appeal the decision with your state’s Workers’ Compensation Board.
A claim for workers’ compensation may be disputed by an employer. In that case, the Workers’ Compensation Board may be asked to resolve the dispute.
Disputes can arise over whether the employer is actually liable for an injury or illness.
Workers’ compensation payments are also susceptible to insurance fraud. An employee may falsely report that an injury was sustained on the job, exaggerate the severity of an injury, or invent an injury.
In fact, the National Insurance Crime Board asserts that there are “organized criminal conspiracies of crooked physicians, attorneys, and patients” who submit false claims to medical insurance companies for workers’ compensation and other benefits.
Who is exempt from workers’ compensation?
Generally, only salaried employees are eligible for workers’ compensation; contractors and freelancers are not. Beyond that, every state writes its own rules.
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