Workers Compensation Insurance
Why You Need It
One can never predict when the next mishap will happen. Regardless of the safety equipment you install, it does not completely rule out the possibility of workplace accidents. So, there’s one safe bet to deal with such uncertain events though—workers compensation insurance. While workers compensation insurance is mandated by almost all the states, according to Insurance Information Institute, the law does happen to differ by state. Therefore, it is better to know all about the policy before you start shopping for one.
In this blog
- What Is Workers Compensation Insurance?
- Do I Need A Workers Compensation Insurance Policy?
- Coverages of Workers Compensation Insurance
- Personalize Your Policy
- Exclusions You Should Know
- How Much Does It Cost?
- Where Can I Get Workers Compensation Insurance?
- Other Insurance Policies That Include Workers Compensation Policy
What Is Workers Compensation Insurance?
Workers compensation insurance is a policy that offers cash and medical benefits to your employees and their dependents in the events of injury, illness, and death due to workplace mishaps. To enumerate, workers compensation covers medical payments, loss of wages, rehabilitation costs, and death benefits.
Do I Need A Workers Compensation Insurance Policy?
Workers compensation insurance started as a bargain between employers and workers during the 20th century. In reality, people didn’t like how the tort system was used as a workers compensation mechanism for occupational illness, injury and death. Under the tort system, the employer’s liability for workplace injury was decided by judge or jury.
So, under workers compensation insurance, the bargain was to provide workers with a guaranteed no-fault benefit for occupational hazards against workers’ forfeiture of the right to sue their employers. Today, every state law requires you to have workers compensation insurance, except Texas. However, in Texas, employers without the insurance are exposed to litigations following employee injury, death or illness.
Coverages of Workers Compensation Insurance
Workers’ compensation is a win-win policy for both employers and employees. Basically, it protects employers against hefty lawsuits and covers employees from medical expenses arising out of workplace misfortunes. Therefore, the coverages of workers compensation insurance come in two parts:
Coverage A: Workers Compensation Insurance
Medical payments include costs of immediate treatment such as ambulance fees, admission to the emergency room fees, hospital fees, surgery costs and other medical bills. Because of the pandemic, the government has issued several guidelines to compensate employees. You can also see the U.S. Department of Labor‘s comprehensive plan till 2024 to plan better.
For instance, imagine that one of your employees’ trips in your warehouse and breaks their leg. So, without insurance, the employee could sue you and you would most likely be held responsible for their medical bills. But with workers compensation insurance, your insurer will pay for costs such as ambulance rides, x-rays, prescriptions, and physical therapy, in addition to other medical expenses.
Injuries from a dangerous work environment can cause temporary or permanent disabilities, leaving employees unable to work at the same level they did previously or work at all.
- Temporary total disability is when workers cannot perform their job responsibilities at all until, they make a full recovery. Usually, the benefit period is in effect from their time of injury to the day they return to work after their full recovery. In most states, workers compensation equals two-thirds of the total pre-injury wage of the worker.
- Temporary partial disability is when injured workers can return to work to perform a reduced amount of job responsibilities after some medical improvement. They have a reduced number of responsibilities and hence, a reduced salary. However, workers compensation provides temporary partial disability benefits.
- Permanent total disability is when someone is maimed even after receiving maximum medical care. They are no longer able to work at all. Workers’ compensation provides permanent total disability benefits to such workers. Such cases are quite limited.
- Permanent Partial Disability is when the permanent impairments do not completely limit one’s ability to work. In some states, workers compensation begins when workers achieve maximum medical improvement. In others, the permanent partial disability benefit is an extension of temporary disability benefits.
In instances where workers are unable to continue working at a job due to permanent disabilities, the workers compensation policy covers retraining costs. Surely, such costs include schooling expenses and other training expenses. Hence, training prepares the workers to work in other fields.
Workplace accidents can sometimes cause employee deaths. In the long run, workers’ compensation helps you offer benefits to the bereaved family. The benefits cover funeral expenses and may also include long-term income replacement costs. The benefit amount depends on the earnings of the deceased employee and the number of his/her dependent survivors.
Coverage B: Employers Liability Insurance
By and large employers’ liability coverage protects you from lawsuit-related expenses. While coverage A covers workplace accident-related expenses, coverage B covers settlement costs, and court and attorney fees. The coverages are:
An employee may get injured while operating a machine in the workplace. for such instance, the employee can file a lawsuit against the manufacturer. However, the manufacturer may file a case against you, claiming that the equipment was poorly maintained. Your employers’ liability coverage protects your wallet from the legal expenses incurred when defending your company.
Dual capacity suit
If your employee becomes injured or ill due to your business’ product or service, you are exposed to two potential lawsuits—workplace injury and product liability. In the long run, workers compensation insurance helps you deal with a dual capacity case like this. Following the unfortunate event, coverage A compensates for the employee’s illness and coverage B protects from the product liability suit.
Loss of consortium
So let’s suppose excessive work stress or any workplace injury makes your employee unable to perform home or childcare services. Coverage B compensates the employee for the expenses to hire someone for the home duty or childcare.
Consequential bodily injury
On account of an injured employee’s worsening health condition, for example, demands more caretaking from his/her spouse. In the process of caretaking, the physical and mental demands for caretaking could cause some health problems to develop in the spouse. As a result, the spouse can file a lawsuit against you. However, employer’s liability insurance covers such litigation costs.
Personalize Your Policy
Endorsements are a great way to personalize your workers compensation policy. They let you add, remove or modify coverages to fit the needs of your business. Some common endorsements are:
Waiver of subrogation
Say you run a contracting business. One of the sub-contractors is injured on-site. Subrogation enables the sub-contractor’s insurer to compensate the injured and later, file a lawsuit against you. However, this endorsement limits such lawsuits from third-party’s insurers.
Monopolistic states limit workers compensation insurance to coverage A. In those states, workers compensation excludes employer’s liability insurance. Add this endorsement to fill the coverage gap. Employers in monopolistic states must add stop-gap endorsement if they operate in non-monopolistic states. It is a statutory obligation.
Voluntary compensation endorsement
Your business may hire employees who aren’t eligible to receive workers compensation benefits, such as independent contractors. Injury of a contractor can expose you to lawsuits. This endorsement extends coverage to such employees and prevents you from litigation.
Exclusions You Should Know
Exclusions of workers compensation depend on the exemption law of your state. However, here are some common exclusions:
Drug and alcohol intoxication
The workers compensation policy excludes any expenses due to damage caused by or injury of intoxicated employees. In fact, most states require the injured employees to take a drug and alcohol test.
Breach of policy
Intentional harm, non-compliance of minimum health and safety requirements, discrimination in the workplace, etc., voids the policy. As such, insurers will provide no compensation on the grounds of breach of policy.
Any injuries outside the workplace and not caused by the work environment are out of the scope of the policy. For instance, an employee getting injured while rock climbing during the weekend is not covered under the workers compensation policy.
How Much Does It Cost?
- Class codes of the industry
- State regulations
- Annual payroll
- Nature of work
- Claims history
Additionally, the cost also depends on the coverages that your business requires. Furthermore, underwriting guidelines of the insurers and state law impact the costs.
Where Can I Get Workers Compensation Insurance?
Employers exclusively finance workers compensation insurance. You can get workers compensation insurance from:
- State funds: If you are operating in a monopolistic state (North Dakota, Ohio, Washington, or Wyoming), you need to buy the policy from the state funds. Most other states offer it as an option.
- Private insurers: Most states allow you to buy the policy from private insurers.
- Self-insure: You need to show financial adequacy to carry your own risk.
Other Insurance Policies That Include Workers Compensation Policy
The industry-specific insurance packages for businesses having employees include workers compensation policy. Such insurance policies are:
- Accounting insurance
- Art insurance
- Beauty insurance
- Construction insurance
- Consultant insurance
- Contractors insurance
- Engineer insurance
- Food business insurance
- Food truck insurance
- Gas station insurance
- General contractor insurance
- Handyman insurance
- Hotel insurance
- Landscaping insurance
- Pet business insurance
- Photography insurance
- Restaurant insurance
- Truck insurance
- Church insurance
- Entertainment insurance
- Farm insurance
- Lawyers insurance
- Nonprofit insurance
- Nursing insurance
- Personal trainer insurance
Has this article been helpful to you? Leave a comment below and share your thoughts with us.
Also, find a local insurance agent around you for the the right insurance policy.
What does it mean to be considered a monopolistic state?
There are four monopolistic states—North Dakota, Ohio, Washington and Wyoming. If you are from these states, you cannot purchase workers compensation from private insurers. In Ohio and Washington, you can self-insure. However, in North Dakota and Wyoming, you need to buy the policy from state funds. Remember that state funds typically exempt employers’ liability coverage.
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