Workers’ Compensation Insurance
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Workers’ compensation insurance

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Workers’ compensation insurance

Workers’ compensation insurance covers medical costs and lost wages for work-related injuries and illnesses. This policy is required in almost every state for businesses that have employees.

What is workers' compensation and why is it important?

Workers' compensation insurance 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 (or a certain number of workers).

Even when not required by law, this policy provides important protection against healthcare expenses and employee lawsuits related to workplace injuries, such as a slip and fall in the office, an injury from tools or machinery, or an occupational illness.

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, your business will be responsible for any medical bills and legal fees. Most states levy costly penalties for noncompliance.

A worker putting away inventory in a warehouse

Small businesses find workers’ comp essential for three reasons:

  • Most states require workers’ comp coverage
  • It covers medical expenses and partial lost wages due to a job-related injury
  • Most workers' comp policies also cover the cost of employee lawsuits related to a work injury

What does workers' compensation insurance cover?

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Medical expenses

Workers’ compensation insurance covers the cost of immediate medical care for workplace accidents, such as ambulance rides, emergency room visits, surgical procedures, and other medical bills. Ongoing care, such as medication and physical rehabilitation, is also covered.

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Disability benefits

A serious injury can prevent an employee from returning to work for days, weeks, or even months. Workers’ comp benefits cover part of the wages lost while an employee is recovering from a workplace injury or occupational illness.

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Compensation for fatal injuries

When a work-related incident is fatal, workers’ compensation pays death benefits that cover funeral expenses and help support the deceased individual’s family members.

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Lawsuits related to workplace injuries

Workers’ compensation insurance typically includes employer’s liability insurance. This type of insurance protects employers from lawsuits related to work injuries.

For instance, a worker might claim that a lack of basic workplace safety led to their injury. If the worker sues their employer, this coverage would pay for:

  • Attorney’s fees
  • Court costs
  • Settlements or judgments

How much does workers’ compensation insurance cost?

A small business owner calculating their workers' comp insurance payments

Workers’ compensation insurance policies cost an average of $45 per month. This is based on the average cost of workers' comp insurance. 23% of Insureon's small business customers pay less than $30 per month for this policy.

Your workers' comp cost is calculated based on a few factors, including:

  • Payroll
  • Location
  • Number of employees
  • Industry and risk factors
  • Coverage limits
  • Claims history
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Is workers’ comp insurance required by law?

Each state has unique workers' compensation laws and penalties, which are usually set by a state 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. However, there are exemptions for certain types of workers and business structures – such as real estate agents and agricultural workers.

Texas and South Dakota are the only states where business owners are never 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 use self-insurance plans. North Dakota, Ohio, Washington, and Wyoming require employers to purchase workers’ comp insurance through a state fund.

How to get workers' compensation insurance

View video transcript.

Are we a drama-free bakery? Umm... What? What drama?

I don't just *feel* the cupcake.. I *am* the cupcake. (sigh)

What is this? Those are cupcakes. Yeah, thank you. Why is one of them half-eaten? I was hungry. Oh, you were a little hungry? What, you didn't have a lunch break? I didn't have time. Okay, stop yelling!

My job? I deliver pastries, and pastry-like items. But I'm inventor. (Yelp)

Don't worry, you have workers' comp insurance. That protects you and your employees from accidents. Even when cream filling is involved.

Well, so much for swimming with the dolphins. (Dolphin noise)

Less drama. More treats! Get all the coverage your business needs by clicking this button. Protection is peace of mind...and a piece of cake.

Insureon helps a wide range of businesses get the coverage they need from top-rated U.S. insurance carriers. Complete our easy online application to get free insurance quotes.

Our expert insurance agents can help you choose the best workers' compensation coverage that meets the needs of your small business.

You’ll typically be able to get coverage quickly and receive a copy of your workers' compensation insurance certificate on the same day.

Do self-employed business owners and independent contractors need workers’ comp insurance?

Typically not by law. States generally require businesses with employees to purchase workers' compensation insurance.

But sole proprietors, independent contractors, single member limited liability companies (LLCs), and other self-employed business owners with no employees may buy this policy to fulfill the terms of a contract. Your clients don’t want to deal with the expense and hassle of a workplace injury. That’s why they might require contractors who work for them to carry their own business insurance, including workers' comp.

Recently some states, such as California, have begun requiring businesses engaged in hazardous work to have workers’ comp coverage for all individuals, regardless of whether they are sole proprietors or independent contractors.

Workers' comp can also help protect your income. Most health insurance policies exclude coverage for work-related injuries and illnesses, so if you carry workers' comp as an independent contractor, your medical bills will be covered when you’re injured on the job.

Additionally, workers' comp can partially replace wages lost while taking time off to recover from a work-related injury.

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What does workers' compensation insurance not cover?

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Injuries caused by intoxication, drugs or company policy violations

If an employee is under the influence of alcohol or drugs and gets injured due to intoxication, workers' compensation benefits would not apply.

In addition, if an employee does not follow company policies, such as wearing a hard hat when working with heavy equipment, and hurts themselves, they are not entitled to workers' compensation benefits.

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Injuries claimed after firing or layoff

If an employee gets injured or makes claims of injury after experiencing a termination (including being fired or laid off), they are not eligible for workers' compensation benefits. A worker must be an active employee at a company in order to receive workers' compensation coverage.

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Wages for a replacement worker

If your employee is unable to work due to injury and you have to bring on a replacement worker, workers' compensation would not cover the replacement worker's salary. The injured employee would still be entitled to wage loss benefits.

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OSHA fines

OSHA requires workplaces that operate heavy machinery, such as manufacturers, to follow set safety guidelines. In the event that an employee gets injured for not following OSHA safety procedures, the company may receive non-compliance fines that would not be covered by workers' comp.

Other important policies for small businesses that purchase workers' comp

While workers’ comp can be an important part of your risk management plan, you should consider these other small business insurance policies to fully protect your business from financial losses:

General liability insurance: This insurance policy covers common business risks, such as customer injuries or property damage, advertising injury, and copyright infringement. It protects your small business from the high costs of lawsuits and helps you qualify for leases and contracts.

Business owner's policy: A BOP bundles general liability coverage and commercial property insurance at a discount. It protects against the most common third-party lawsuits and property damage.

Professional liability insurance: Also known as errors and omissions insurance, professional liability coverage protects small businesses against the costs of client lawsuits over unsatisfactory work.

Commercial auto insurance: This policy is required in most states for businesses that own vehicles, this policy covers your legal bills, medical expenses, and property damage if a business vehicle is involved in an accident.

Cyber insurance: Also known as cyber liability insurance, this coverage insures against the costs of data breaches and cyberattacks. It covers things like customer notification, credit monitoring, legal fees, and fines.

Need a policy recommendation? Answer three questions and we can help you find the right coverage for your business.

FAQs about workers' compensation insurance

Get answers to frequently asked questions about workers’ comp insurance

Does workers' compensation insurance help cover fatal accidents?

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

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

Does workers' compensation protect against employee lawsuits?

In many states, yes. Most workers’ compensation policies include employer’s liability insurance to protect your business if an injured worker files a lawsuit against you for not preventing 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 known as the four monopolistic workers' comp states, in which workers' comp coverage must be purchased from a state fund, and does not include employer's liability coverage. Insurance providers sell stop gap coverage to protect you from employee lawsuits.

How can small business owners save money on workers' comp insurance?

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 ensuring each worker is properly classified as either a contractor or an employee (full-time or part-time), and listed under the appropriate class code, you can save money and avoid potential legal action.

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 (i.e., 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 a good Experience Modification Rating (EMR) and a documented safety program can help lower workers' comp costs. A safer workplace means fewer accidents, which helps keep your premium low.

What is the difference between general liability and workers' comp insurance?

Both policies deal with bodily injuries. General liability insurance protects your company when a client or another third party suffers an injury on your property and sues for medical expenses.

Workers’ comp insurance covers expenses resulting from employee injuries sustained while working.

Learn more about the difference between general liability and workers’ compensation insurance.

Does workers' compensation cover employees who contract COVID-19?

It typically depends on where an employee contracted COVID.

Workers' comp insurance protects employees from on-the-job injuries and illnesses. If an employee is exposed to the coronavirus because of their job, then this policy should provide coverage.

For example, a nurse caring for sick patients or a grocery store worker who deals directly with the public would both have a stronger claim than an office worker. Workers’ comp doesn't cover diseases unrelated to employment.

Your state's laws could potentially help cover costs related to COVID-19. If you think you might be eligible for a workers' compensation claim, contact your insurance agency’s claims department.

Where can I learn more about workers' compensation insurance?

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

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

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