Guaranteed cost insurance

Loss-sensitive insurance policies are available in a few customizable plan options, including:

• Large deductible plans: You select a large deductible, such as $250k or $500k per claim, and then insurance handles the rest. Typically, you’d receive a substantial premium discount upfront for assuming the risk.
• Retrospective plans: Your final premium is adjusted after the policy term ends, based on your business's actual paid or incurred losses. This option usually includes a loss limit, so you’re protected from significant losses.

Because these options require you to carry the financial risk, they’re recommended for larger businesses with substantial cash flow and robust safety protocols.

When you purchase a guaranteed cost workers’ comp insurance policy, you’ll pay a flat-rate premium upfront. This premium is calculated based on your business’s estimated exposure base, including your industry, estimated payroll, job classifications, and claims history.

Budget-minded businesses prefer this option because the premium stays the same during the policy term, and they don’t have to pay deductibles. The insurance carrier pays 100% of covered losses within your policy limits, including:

• Medical costs, including emergency room visits and medication
• Disability benefits, such as wages lost during recovery
• Legal expenses, including attorney’s fees, settlements, or judgments

While guaranteed cost policies are a good option for any business, they’re highly recommended for small businesses that have limited cash flow, run a tight budget, and want to avoid any costly surprise expenses.

When an employee suffers a work-related injury or illness, a guaranteed replacement cost workers’ comp policy will pay for all of the incident-related expenses. Here are a few examples:

• If a massage therapist spills oil, slips, and sprains their wrist, a guaranteed replacement cost policy will pay their medical bills and lost wages without affecting the day spa owner’s fixed premium.
• Should a manufacturing plant worker develop severe carpal tunnel after performing the same tasks repeatedly, a guaranteed replacement cost plan would absorb the full cost of their ongoing care, physical therapy, and months of lost wages.
• If a delivery driver gets into an accident while on their route, guaranteed replacement cost workers’ comp will cover 100% of their medical expenses and lost income during recovery.
• If a roofing contractor falls off a ladder at a jobsite, requiring hospitalization, surgery, and rehabilitation, guaranteed replacement cost coverage would handle the significant expenses, keeping the small construction business on budget.

At the end of your policy term, your insurance company may conduct an audit to ensure that your business is paying the right amount for your workers’ comp coverage. Here are some key facts about policy audits every business owner should understand:

There are a handful of reasons why your insurance provider may conduct a policy audit, including:

• To confirm your estimates: The amount of the premium you pay upfront is based on your estimated payroll and the types of jobs your employees have for the policy period. Hiring, giving raises, or changing employees’ job codes all affect your actual payroll and risk level.
• Payment fairness: The audit ensures you don’t overpay if your actual numbers were lower than your estimates, and that the insurer isn’t underpaid if your actual risk exposure was higher.
• Legal compliance: Some states require audits as part of policy compliance.

It’s important to know that a policy auditor is not looking at the frequency or severity of your claims during the policy term. Instead, they compare your initial estimates for payroll and employee job codes to the actual figures during that period.

To do this, they may review:

• Payroll records
• Employee records and job classification codes
• Tax forms, such as W-2s, 1099s, Form 941, and Form 944
• Cash flows, expenses, and disbursements
• Certificates of insurance for any subcontractors

You’ll typically receive an audit summary from your insurance company explaining what the audit found and how your insurance premium will change. These changes can include:

• Premium adjustments: If your actual payroll is lower than estimated, you’ll get a credit or refund. If it is higher, you’ll owe the insurance company money.
• Job code updates: If your estimate had misclassified employee job codes, your premium could change depending on the correct classifications.