Workers’ compensation insurance

Workers' compensation insurance is a no-fault policy that covers costs related to workplace injuries and illnesses, which can escalate quickly due to the high cost of medical care.

While workers’ comp laws vary by state, small businesses typically need a policy in place as soon as they hire their first employee. Almost every state requires coverage once you reach a certain number of full-time and part-time employees.

Even when not required by law by your local Department of Labor or other governing body, this policy provides important protection against healthcare expenses and employee lawsuits related to workplace injuries, such as a slip and fall in the office, or an injury from tools or machinery.

You can also rely on workers’ comp if an employee needs medical treatment or time off due to a workplace injury—or if an injured employee sues you for failing to prevent an accident.

If you don’t carry workers’ comp insurance (formerly called workman's compensation insurance), your business will be responsible for any medical bills and legal fees. Most states levy costly penalties for noncompliance.

Each state has unique workers' compensation laws and penalties, which are usually set by the state's workers' compensation board.

In most states, workers' comp is required as soon as a business hires its first employee. Other states don’t mandate coverage until a business has two, three, four, or more employees.

There are sometimes exemptions for certain types of workers or business structures—such as real estate agents and agricultural workers. Subcontractor coverage requirements vary by state, but many businesses choose to get workers' comp regardless to mitigate their risks.

Texas and South Dakota are the only states where business owners are not required to purchase workers’ compensation insurance coverage. All other states impose penalties for not carrying workers’ compensation. These can range from fines to jail time—or both.

Most states allow business owners to buy workers’ compensation insurance from private insurers or self-insure their business. North Dakota, Ohio, Washington, and Wyoming are monopolistic states that require employers to purchase workers’ comp insurance through a state fund.

If you work alone, workers' comp probably isn't required. States generally mandate workers' compensation for businesses with employees, and in some cases independent contractors are not eligible.

However, sole proprietors, single member limited liability companies (LLCs), and other self-employed business owners with no employees might buy this policy to fulfill the terms of a contract or obtain protection for themselves. Most health insurance policies exclude coverage for injuries related to your job, so you might want this coverage to protect against financially devastating medical bills.

Your clients don’t want to deal with the expense and hassle of a workplace injury either. That’s why they might require 1099 contractors who work for them to carry their own business insurance, including workers' comp.

Some states require businesses engaged in hazardous work, such as roofing, to have workers’ comp coverage for all individuals, whether they are sole proprietors or independent contractors.

Workers' comp doesn't just pay for medical treatment. If you need time off work to recover from an injury, workers' comp will provide disability benefits to cover part of the wages you'd otherwise lose.

Yes, most workers’ compensation policies include death benefits. These help a deceased employee’s loved ones pay funeral and burial costs after a fatal workplace accident.

Workers’ comp can also provide financial assistance for the deceased employee’s family and dependents.

In almost every state, yes. Most workers’ compensation policies include employer’s liability insurance to protect your business if an injured worker sues you for failing to prevent a workplace accident.

However, business owners in North Dakota, Ohio, Washington, and Wyoming do not have employer’s liability insurance included in workers’ comp. These states are monopolistic workers' comp states, in which workers' comp coverage must be purchased from a state fund.

In these states, you can buy stop gap coverage from an insurance provider to get protection against employee lawsuits.

To save money on workers' comp, it's important to make sure you classify your employees correctly. Employees with desk jobs or other jobs with a low risk of injury cost less to insure. By making sure each worker is listed under the appropriate class code, you can avoid misclassification lawsuits and penalties.

In some cases, small business owners can choose to buy pay-as-you-go workers' compensation. This type of workers' comp policy has a low upfront premium, and lets you make payments based on your actual payroll instead of an estimated payroll. It's useful for businesses that hire seasonal help or have fluctuating numbers of employees.

In addition, some business owners may be eligible for a minimum premium workers' compensation policy, which sets your premium charges at the minimum premium (the smallest amount of money that an insurance company will sell to a business). Small businesses that benefit from this type of policy often have few risks and a small number of employees.

Finally, businesses with an Experience Modification Rating (EMR) that reflects a clean history of claims and a documented safety program can expect lower workers' comp costs. A safer workplace means fewer accidents, which helps keep your premium low.

Occupational diseases are covered by workers' compensation. That includes any health condition linked to workplace factors, such as asthma caused by harsh chemicals, or carpal tunnel syndrome from typing or other repetitive motions.

Workers' compensation sometimes provides coverage for other illnesses, such as COVID or hepatitis. This is most relevant for nurses, doctors, and other healthcare workers who are exposed to diseases through the course of their work.

For example, a personal care aide caring for sick patients or a grocery store worker who deals directly with the public might be able to file a workers' comp claim if they catch a contagious illness on the job. The specifics depend on the state's workers' compensation laws, which might place the burden of proof on the employee.

Diseases that are not related to employment would not be covered by workers' compensation. If you think you might be eligible for a workers' compensation claim, contact your insurance agency’s claims department.

If you want to learn more about this policy, you can find answers to our frequently asked questions about workers' compensation insurance.

If there are any other questions you have about coverage, you can contact an Insureon agent.