The Small-Business Owner's Guide to Workers' Compensation Insurance

Chapter 4: Workers' Compensation vs. Health Insurance
Part 2: Funeral Insurance, Accident Insurance, & Critical Illness Insurance

Funeral insurance, accident insurance, and critical illness insurance — you've probably heard all these terms before. But did you know these insurance coverages mean different things inside and outside of your business?

When someone talks about funeral, accident, and critical illness insurance in relation to your employees, they are usually referring to Workers' Compensation Insurance. Workers' Comp can offer all of these protections to your workers — as long as their condition is related to their work.

Outside your business, these coverages may refer to specific types of health or life insurance. We'll discuss the differences below.

Funeral Insurance: Workers' Comp Benefit vs. Life Insurance Policy

Let's begin by exploring what funeral insurance means in terms of your Workers' Compensation Insurance policy. Most Workers' Comp policies provide two types of benefits in the event that a workplace injury or illness causes the death of an employee:

  • Funeral expenses to help pay for the ceremony and burial.
  • Survivor support to financially compensate spouses or dependents for their loss.

Outside of the workplace, Funeral insurance most likely refers to a type of specialized life insurance policy that helps individuals plan and pay for their inevitable demise. This type of coverage is also called "burial insurance" and "final expense insurance."

Like the Workers' Comp benefit, this coverage can help pay for funeral expenses. Some policies also offer benefits that pay for the deceased's outstanding medical bills and other debts.

The big difference is that the Workers' Compensation benefit is offered by an employer and is only valid if the cause of death is related to the employee's work. The other kind of funeral insurance is a personal policy bought by individuals, and the cause of death does not necessarily need to be work-related.

Accident Insurance: Workers' Comp Benefit vs. Health Insurance Policy

Accident insurance may refer to an employee benefit included in your Worker's Comp policy. As you know, injuries are covered by this policy as long as they are work-related, which includes most on-the-job accidents. However, there are usually exclusions for accidents connected to workplace fighting or drug use.

Outside of work, accident insurance may refer to a type of health insurance rider. A "rider" is special coverage that can be added on to your primary policy. This type of coverage helps individuals pay for unexpected physical traumas, such as a broken bone caused by a ski accident. It can also pay for accidental death expenses.

Some insurance agents recommend this rider if an individual's health insurance has a high deductible. Accident insurance can usually be tailored to cover the cost of your health insurance deductible so you don't have to worry about paying a large out-of-pocket sum on top of other medical expenses.

Like all health insurance policies, accident insurance excludes coverage for workplace injuries. This policy is not a substitute for Workers' Compensation Insurance, even if workers can purchase it through an employer-based health insurance program.

Offering personal accident insurance policies through your business's health insurance program doesn't fulfill your Workers' Comp obligations.

Critical Illness Insurance: Workers' Comp Benefit vs. Health Insurance Policy

In terms of Workers' Compensation, the critical illness benefit refers to the fact that employees can be compensated for diseases they develop as a result of their job. For example, if a lawn maintenance professional develops skin cancer as a direct result of his outdoor job, his recovery may be financed by his employer's Workers' Compensation policy.

Outside the workplace, critical illness insurance probably refers to another type of health insurance rider. This coverage helps individuals pay for the high cost of life-threatening diseases (e.g., cancer and heart disease).

Critical illness policies are different from regular health insurance policies because the benefits can be applied to expenses beyond healthcare. These benefits are usually paid directly to the policyholder and can be used to pay bills, tuition, business expenses, and other debts.

Both accident insurance and critical illness insurance can be offered to employees as an option if your business uses a health insurance program. Like other personal health insurance policies, critical illness insurance cannot be used in place of Workers' Compensation Insurance.

Next: Part 3: Do Freelancers & Independent Contractors Need Workers' Comp or Health Insurance?

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