Workers' Compensation Insurance

Good employees are the backbone of your business. When an employee gets injured or becomes ill due to a work incident, workers’ compensation insurance (also known as workers' comp insurance) can help cover a portion of their expenses and get your employee back to good health sooner. A workers’ comp insurance policy can also provide financial protection for you and your business in the event of a legal dispute.

Before getting a workers’ comp insurance quote, it may be helpful to better understand how a policy can serve you. Here, you’ll learn about what a workers’ comp insurance policy is, who should have one, and how to save money on one.

What Is Workers’ Compensation Insurance? 

Workers’ comp is a very important type of business insurance that not only covers employees’ workplace injuries, but also prevents them from suing their employers after an accident or illness. A workers’ comp insurance policy can protect your business by reducing liability, providing financial support for legal disputes, and minimizing the total financial loss to your business if an employee is injured on the job or gets sick as a result of their duties. Workers' compensation is required by law in most states, and those requirements can vary from state to state.

Workers' comp is a fairly comprehensive form of insurance protection. In addition to paying an injured employee’s medical bills, it can also pay rehabilitation costs, lost wages, disability benefits, funeral expenses, and even death benefits. However, it will only pay for those extra expenses if they’re directly caused by the workplace injury. 

Workers’ comp insurance policies are almost always considered a no-fault insurance. This means it will pay the benefit regardless of who is at fault for the accident—as long as it wasn’t intentional. In most cases, this no-fault structure means an employee who accepts workers’ comp benefits cannot file a liability lawsuit against the business.

What Does Workers’ Compensation Cover? 

Workers' compensation covers nearly all workplace injuries, as long as they're declared accidental. The full definition is fairly broad, however, with generic wording that defines what’s covered as “injuries sustained during the course and scope of employment.” For an illness or injury to qualify as work-related, it must occur during the employee’s regular job activity.

There could be some gray areas in what that means exactly. If you slip and fall in the parking lot on your way into work, that could be considered a workers' comp claim, though some states have stricter guidelines than others. 

Why Do I Need Workers’ Compensation? 

Workers' comp insurance is important for business owners to have for two very important reasons:

1. Financial protection: Workers’ comp can help cover the cost of injured employees’ medical bills and lost wages. Without a workers’ comp policy, your business may be responsible for paying those expenses. Even one serious injury could cost hundreds of thousands of dollars.  
2. Legal protection: In most cases, employees who accept workers’ comp benefits forfeit their right to sue you for a workplace injury. With no workers’ comp policy in place, your business may be at risk for expensive liability lawsuits.

As for employers, workers' compensation insurance can help them provide financial help to injured employees and enjoy a fixed cost, and it also offers protection from lawsuits due to workplace injuries. Beyond protection for your business, workers’ compensation insurance also benefits your employees, giving them peace of mind that lets them stay focused on their job.

Is Workers’ Compensation Insurance Required?

Workers' comp, among a few other types of insurance, is regulated at the state level. Each state has its own set of workers' comp laws that regulate and govern it, with certain regulations depending on the type and size of the business. 

If you're a sole proprietor or partnership, some states won’t require you to purchase workers' comp. Other states won’t require you to provide workers’ comp insurance until you have five employees. Most states require workers’ comp insurance regardless of the number of employees.

Independent contractors aren’t typically considered employees, but they may pose risks for your business. If they don’t have their own coverage and are injured at work, your business may be liable.

The Most Common Workers' Compensation Claims Include:

Workers' Compensation Insurance Benefits

If there is a workers' comp claim, the insurer will pay all medical costs related to the injury and include rehabilitation expenses and compensation for lost wages while the employee is unable to work. As you can imagine, in the case of a serious long-term injury, lost wages can be paid out all the way to retirement. 

The exact amount that’s paid out in lost wages depends on whether the disability is total or partial, as well as permanent or temporary.

If the workplace injury leads to death, workers’ comp insurance can pay death benefits, such as funeral and burial expenses, and financial support for a person of the employee’s choosing, similar to an employer-based life insurance policy.

Top Workers' Compensation Considerations You Need to Know

It’s important to note, however, that employees can still sue employers for other types of workplace events, including harassment, bullying, discrimination, etc. 

If a business chooses not to carry workers' comp, it could face a number of consequences, such as the following:

• Criminal charges: If a business is required to carry workers' comp and doesn’t, it could be shut down, heavily fined, and possibly faced with jail time for breaking the law. 
• Legal costs: Without workers' comp coverage, businesses would face the full legal costs of any lawsuits brought against them. 
• Financial ruin: Without workers' comp coverage, businesses would face the full cost of any workplace injuries, lost wages, and lawsuits, which could easily put a company out of business.

Workers’ Compensation Laws by State

Each state has its own laws and regulations for workers' compensation insurance, including the following:

• Size and type of businesses that require it.
• What type of injuries are covered.
• How long benefits are to be paid.

Because of these differences, a multi-state business will probably need to buy a separate workers' compensation policy for each state it operates in. Alternatively, the business owner could purchase a workers' comp policy that applies to all states, though these policies aren’t available in every industry and may be more expensive.

How Much Does Workers’ Compensation Cost?

Workers' comp costs vary widely, with three main factors affecting your premium:

• The state your business operates in
• The size of your business
• The industry your business is in

For example, a large roofing contracting company will likely pay more for a workers’ comp policy than a large accounting firm due to the increased risk of the work. By contrast, premiums for a solo hair stylist could be a few hundred dollars a year, while a large manufacturer could pay hundreds of thousands of dollars each year.

Another factor that can affect your premium is your workers' comp claims history, expressed as a number, also known as an experience modifier, or just a 'mod,' for short.  A business’s experience modifier is a formula that illustrates whether that business has had greater or fewer workers’ comp claims than others in the same industry. An experience modifier above 1.00 means your business has filed more claims than average, which may result in higher rates.

How Can You Get Lower Workers’ Comp Insurance Rates? 

There are three key things you can do to lower your workers' comp rates, though it typically takes at least one year, if not three to five years, to earn a better claims history with a lower rate. 

• Ensure your workplace is a safe environment: Lower risks mean lower premiums, so use signs if there's a wet floor, make sure there are proper railings in place on any steps, and don’t leave any dangerous tools or materials in areas that could cause injuries. 
• Raise your workers' comp deductible: You could raise your workers' comp deductible to a higher number, such as $5,000 or so. While this would mean you would have to pay for injuries under your deductible amount, it would also help reduce the number of claims you have. 
• Lower your experience modifier: Having fewer claims with low dollar amounts will help your claims history. Having a better than average workers' comp modifier can give you better rates, but insurers will want to see more than one year of your claims history. 

Workers' Compensation Insurance FAQs

Your Independent Insurance Agent Has Your Answers for All Questions about Workers Compensation Insurance

Whatever you need, your independent agent has your back. They can help you understand the terms, discounts, and processes of workers' comp insurance. Your agent will ask about your business, its employees, and your goals to help you find the best workers' compensation option.