Even though you take steps to keep your employees safe from workplace accidents and illnesses, the unpredictable sometimes happens. When it does, Workers Compensation insurance can provide benefits to your employees and help protect your business financially. Nearly all states require you to carry it, so here's what you need to know about this important coverage:
What is Workers Compensation Insurance?
When an employee is injured or becomes ill on the job, Workers Compensation insurance, also known as Workers Comp insurance, can help cover related medical expenses and rehabilitation costs, and reimburses an employee for lost wages while they're out of work or if they become disabled for an extended time. It helps ensure a safe return to work, as soon as medically appropriate. In return, when an injured employee obtains Workers Comp benefits, they cannot sue you for damages. By paying those benefits to the injured employee, Workers Comp insurance protects you against possible lawsuits for those benefits.
Do I Need Workers Compensation Insurance?
Workers Comp insurance is required by law in most states, and highly recommended if not. Typically, if a W-2 is issued, you will need Workers Comp insurance. Because the Workers Comp system is governed by state statute, rules around coverage for benefits and penalties for not insuring your employees vary by state. For example, California requires you to obtain Workers Comp insurance as soon as you have one employee. Similarly, the state of New York can assess an employer a $2,000 penalty per 10-day period of noncompliance. For this reason, it's best to check with your insurance agent or your state's labor department to avoid fines for not carrying Workers Comp insurance.
How Can I Buy Workers Compensation Insurance?
The way you obtain Workers Comp insurance depends on your state. Generally, there are two ways to buy it:
In most states, you have the option to purchase it from a private insurance company, through your local agent or from a state-run insurance fund.
A few states require you to purchase it from a state-run insurance fund.
What Sets My Insurance Cost?
The cost of your Workers Comp insurance depends on several factors, including:
The number of employees you have;
Their total compensation;
Your type of business;
Your history of workplace injuries.
The more employees you cover and the more they earn, the higher your premium might be. This is because Workers Comp benefits replace a percentage of an employee's income after they become disabled, so someone who earns a higher salary may be more expensive to insure.
Workers Comp insurance can be costlier for more dangerous jobs and more hazardous industries. For example, a company in construction should expect to pay more than a company in retail.
Over time, your insurance company will evaluate how often your employees make Workers Comp claims. Fewer claims can result in a policy discount, while the opposite may be true if there are multiple claims.
Before you sign up for coverage, your insurance agent may be able to estimate how much your policy will cost for the year and help you plan your budget ahead of time.
Does It Cover All My Legal Risks?
There are times when an employee could take legal action for a workplace incident, even if you have Workers Comp insurance. An example might be when an employee who is not subject to the workers compensation law believes an accident happened because of negligence on your part. For cases like these, Workers Comp insurance is typically combined with additional employers liability insurance, which may further cover legal costs, including a possible settlement, for employee workplace accidents that may not be covered by a standard Workers Comp policy. You can include this extra coverage when you sign up for your Workers Comp policy.
Your employees are your greatest asset. Workers Comp insurance helps protect them and helps support you, so together, you can stay focused on growing your business.
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Disclaimer: The analysis of coverage is in general terms and is superseded in all respects by the Insuring Agreements, Endorsements, Exclusions, Terms and Conditions of the Policy. Some of the coverage mentioned in this material may not be applicable in all states or may have to be modified to conform to applicable state law. Some coverages may have been eliminated or modified since the publishing of this material. Please check with your local Independent Insurance Agent for details