Workers' Compensation Insurance
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Minimum premium workers’ compensation policy

A minimum premium workers’ compensation insurance policy is the smallest amount of money that an insurance company will sell to a business.

What is a minimum premium workers’ comp policy?

Workers’ compensation laws in most states require workers’ compensation insurance for any business that has employees. It insures against occupational diseases and bodily injury to employees in the workplace.

When you buy workers’ compensation insurance, the insurance company sets your annual premiums based on the type of work you do (your classification codes), any claims history you may have, and your annual payroll, which includes full-time and part-time workers.

If this calculation would result in a policy premium that is less than the minimum premium amount, your premium charges would be set at the minimum premium instead. You would then be eligible for a minimum premium workers' compensation policy.

Note that a minimum premium differs from a minimum earned premium, which is the smallest amount of money an insurance company is willing to accept for writing a business insurance policy.

How does a minimum premium workers’ comp policy work?

The minimum premium exists because insurance companies have operating expenses that are beyond their cost of underwriting workers’ compensation claims. It’s the lowest premium that an insurance company will sell a policy for, regardless of your payroll or your amount of coverage.

For small business owners, this could mean that your premiums would be the same if you expanded from one to two employees. If you’re already paying the minimum premium, then your cost of coverage would remain the same even if you reduced your number of employees.

If you eliminated your employees altogether, you would still have to pay the same minimum premium until the end of your minimum premium workers' comp policy period.

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What is the difference between a standard and minimum workers’ compensation premium?

The cost of a standard workers' comp policy is determined by a number of factors. A workers’ compensation premium is typically calculated using a company's payroll, level of risk, the amount of coverage needed, and more.

The minimum premium is the lowest premium amount that an insurance company will sell a policy for, in order to cover its costs of covering the policy. In some cases, state laws regulate the minimum premium amount through their department of insurance.

There are many small business owners who pay the minimum premium amount instead of a standard premium, because their business is considered a low risk for workers’ comp claims, and they have few employees to buy coverage for.

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Who needs a minimum premium workers’ compensation policy?

There are many small business owners who would benefit from this policy:

  • A small business owner with few risks and a small number of employees might still have to provide workers’ comp coverage because it’s required in most states
  • If you’re self-employed or an independent contractor, a minimum premium workers’ comp policy could be an affordable way to insure against a work-related injury which your regular health insurance is unlikely to cover. If you’re injured and unable to work, workers’ comp can also offset some of your lost income
  • Even if you’re a sole proprietor with no employees, and exempt from your state’s workers’ comp requirements, you still might have to provide proof of workers’ comp coverage to qualify for certain contracts

In this case, a minimum premium policy could be a way to meet that obligation. Some business owners might be tempted to opt for a workers’ comp ghost policy, a type of minimum premium policy that offers proof of worker’s comp coverage (but little to no workers’ compensation benefits).

While this would be less expensive than a typical minimum premium policy, keep in mind that with most minimum premium policies you will still get workers’ comp benefits that would not be part of a ghost policy.

How do insurers calculate the minimum premium for workers’ compensation insurance?

In setting their rating plan and insurance premiums for workers’ comp, insurers consider their loss costs. This is the amount of money the insurance company needs to administer a policy and pay on claims, through an entire policy term.

Insurers consider several factors in setting their workers’ comp premiums above the minimum amount, following the National Council on Compensation Insurance (NCCI) guidelines. These include:

  • Your class code (type of business and industry)
  • Your payroll and number of employees
  • Individual risks per each employee, based on the type of work they do
  • Your experience modification or experience rating (how long you’ve been in business)
  • Your loss experience (claims history)

Insurance companies calculate their minimum premiums for workers’ comp insurance based on their administrative costs, minus the expense of paying on claims.

Even if you don’t qualify for the minimum premium, there are still ways to decrease your workers' compensation costs through premium discounts. For example, your insurance company may use a schedule rating which allows for discounts or surcharges. Your eligibility could depend on several factors, such as reducing your risk of an injured worker through employee training and investing in safety equipment.

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How to get workers’ comp insurance quotes from trusted carriers with Insureon

Complete Insureon’s easy online application today to compare insurance quotes and estimated premiums from top-rated U.S. insurance carriers on workers’ compensation coverage, liability insurance, and other policies.

You can also consult with an insurance agent on your business insurance needs. Once you find the right types of coverage for your small business, you can begin coverage in less than 24 hours.

Updated: February 2, 2023
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