What is the difference between workers’ compensation vs. disability insurance?
Workers’ compensation insurance and disability insurance both provide financial help to sick and injured workers who are unable to work.
Most states require businesses with employees to provide workers’ compensation insurance. It pays for medical expenses if an employee suffers a work-related injury or illness. It can also help offset an employee’s lost wages if they’re unable to work for a period of time.
Disability insurance offsets an individual’s lost income if they’re disabled and unable to work because of an injury or illness that happens outside of work. While this coverage is typically not required, some states have disability programs that require coverage for all eligible employees.
Is disability a form of health insurance?
Disability insurance is often thought of as health insurance that covers disabilities, though in reality, it’s a type of income insurance that offers financial support when someone is unable to work because of an injury or medical condition.
The income support could range from 50 percent to 70 percent of someone’s lost income, and can be used for any purpose by the recipient, although it’s often used to cover living expenses and medical bills.
There are two kinds of disability insurance:
Short-term disability
Short-term disability provides disability benefits from three to six months. Many employers offer this coverage as part of a group insurance plan, with either the employer or the employees paying the premiums.
Long-term disability
Long-term disability offers disability benefits for multiple years, and is reserved for longer lasting or even permanent disabilities. This is typically purchased by individuals on their own from an insurance company, although some employers offer it as optional coverage paid by the employee through payroll deductions.
How are workers’ compensation benefits and disability benefits different?
Workers’ comp covers work-related illnesses and injuries, usually without co-pays and deductibles. It also partially offsets an injured employee’s benefits if they’re unable to work. If an employee dies from a work-related mishap or illness, their workers’ comp benefits can provide a cash benefit to the employee’s dependents.
A disability insurance policy may cover things like physical impairments after an accident outside of work, mental illness, pregnancy complications, or diseases such as muscular dystrophy and muscular sclerosis. Disability insurance benefits do not include criminal activities or an act of war.
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MALE VOICEOVER: If you're a small business owner, you've probably heard of workers' compensation insurance and disability insurance. And you’ve probably thought, aren't they basically the same thing?
Not exactly.
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In fact, one of the biggest insurance mistakes business owners make is assuming what each policy covers.
So, let's break down the difference between disability insurance and workers’ compensation insurance, and learn more about when you might need one... or both.
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The simplest way to remember the difference is this: workers' compensation covers work-related injuries and illnesses. While disability insurance, on the other hand, covers illnesses and injuries that happen outside of work.
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For example, say one of your employees slips off a ladder while working at a jobsite and breaks their leg.
That's a workplace injury, so workers' compensation insurance can help pay for medical treatment and replace part of their lost wages while they’re recovering. In most states, businesses with employees are legally required to carry workers' comp coverage.
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Now suppose that an employee gets injured in a car accident over the weekend or develops a serious medical condition unrelated to their job.
That's where disability insurance comes in. Disability coverage helps replace a portion of their income while they're unable to work because of a non-work-related injury, illness, or medical condition.
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Here's why this matters for small business owners.
Workers' comp doesn't just help employees, it also helps protect your business. In many cases, employees who accept workers' compensation benefits give up the right to sue their employer for covered workplace injuries.
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And while disability insurance is often optional, many employers offer it as an added benefit because it helps employees stay financially stable when the unexpected happens outside of work.
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Many businesses benefit from having workers' comp and offering disability coverage because they protect against different risks.
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At Insureon, you can compare quotes from top-rated insurance carriers in minutes and find the right workers’ compensation and disability insurance policies for you and your employees.
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Tap the link to get small business insurance that you can count on.
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How do workers’ comp and disability help employers and employees?
Workers’ compensation does more than just help employees with medical care and income loss, it can protect employers from having to pay out-of-pocket for this type of care, while avoiding lawsuits at the same time.
When employees accept payment via a workers’ comp settlement, they give up the right to sue their employer for covered incidents. This helps the employer avoid costly litigation, and allows employees to get the help they need right away as a workers’ compensation claim can be processed much faster than waiting for a lawsuit to work its way through the court system.
Many employers offer disability coverage, even when it is not required, because it can be a cost-effective way of keeping a medical mishap from turning into a financial burden for their employees.
Another thing to consider is the income replacement benefits from workers’ comp may not be enough for some higher income earners. Many states limit the amount of income replacement available in workers’ comp insurance, so some employers and employees buy disability coverage to make sure they’re financially protected.
When do I need workers’ comp or disability insurance?
Depending on the workers’ comp laws in your state, you’ll likely need workers’ comp coverage as soon as you hire your first employee, although some states set the bar a little higher. For riskier occupations, such as construction, some states require this coverage for independent contractors.
For example, California requires employers to provide this coverage for any employee who regularly works in the state. Certain classifications of licensed contractors also need workers' comp even if they work alone, and this requirement will extend to all licensed contractors in 2028.
Missouri requires businesses with five or more employees to provide workers’ comp. Independent contractors, sole proprietors, and owner partnerships are exempt.
The states of California, Hawaii, New Jersey, New York, Rhode Island, and the territory of Puerto Rico all require employers to participate in state disability insurance programs.
Do self-employed individuals need workers’ comp or disability insurance?
Sole proprietors and contractors with no employees typically aren’t required by law to obtain workers’ compensation insurance, although some states require them for riskier professions.
Regardless of your profession, this coverage might be required to qualify for certain contracts. Some companies require their contractors to have their own workers’ comp insurance because it reduces the company’s liability if a contractor is injured on the job.
Many contractors buy this coverage for the financial protection it offers. If you’re an independent contractor or a sole proprietor, your regular health insurance is unlikely to cover you for a workplace injury or illness. A workers’ comp claim can also replace some of your lost wages if you’re unable to work after an accident.
How to buy workers' compensation insurance from trusted carriers with Insureon
Complete Insureon’s easy online application today to find and compare the most affordable insurance quotes from top-rated U.S. carriers. You can also contact an insurance agent for a free consultation on your business insurance needs. Once you find the right types of coverage for your small business, you can begin your insurance coverage in less than 24 hours.
