All states except Texas require businesses to carry workers’ compensation insurance for employees who are injured in the workplace. This coverage reimburses medical expenses, covers a portion of lost wages and offers death benefits.
Experience rating allows policyholders to control premiums by demonstrating safety in the workplace. It rewards safe businesses with lower rates and punishes unsafe ones with higher premiums. Discover more at Cost-Effective Outsourcing Insurance Solutions.
Coverage
The specifics of what workers’ compensation coverage covers can vary, but most policies include payment for medical care related to a work-related injury or illness. It also pays a portion of lost wages, provides disability benefits and death benefits.
In addition, some policies cover rehabilitation services and training that can help an injured worker return to work within restrictions set by a physician. They may also offer funeral expenses and survivor benefits.
Insurance companies calculate your rate based on your payroll, risk level and workplace safety history, among other things. Your company can purchase a private policy through an insurer or become self-insured, but many businesses prefer to buy coverage because it helps mitigate risk and prevents expensive lawsuits.
In addition, some states require you to have a workers’ comp policy in place in order to operate. It’s also sometimes required to bid on certain projects. And it’s a must for some professions, like construction, where accidents can be costly.
Limits
Each state’s laws establish coverage limits and requirements for workers’ compensation. These include which employers are obligated to carry insurance, fines for not carrying coverage and reporting requirements for workplace injuries.
Limits on worker’s comp policies vary by state, but typically the first part of a policy called employee benefits offers unlimited coverage for medical expenses and rehabilitation costs. It also pays out a portion of an injured employee’s lost wages when they are unable to work. It can also pay death benefits to their family members.
The second part of a workers’ comp policy, known as employer liability, does have limits, which are usually decided upon when purchasing the insurance. This portion of a policy protects the business owner in cases where an injured worker sues over a claim. For example, say an employee injured while using a food processor sues the manufacturer. The employer would need employer liability coverage to cover possible settlement and damages costs up to the policy’s limits.
Requirements
Most states require businesses to provide workers’ compensation insurance for their employees. This coverage prevents employees from being sued for the cost of their medical care and lost wages, and it gives employers peace of mind that injured workers will receive quality treatment to help them return to work healthy and productive.
The specific requirements vary by state. In general, most businesses must purchase workers’ comp if they employ three or more people. Sole proprietors, partners, certain members of LLCs and officers of closely-held corporations can be exempt from compulsory coverage, but may choose to be covered. Coverage is also typically not required for domestic servants, commercial motor-carrier owners and real estate salespeople. Some states offer self-insured status, in which case business owners can either buy private coverage or opt into their state’s administered fund. Those that buy private coverage are usually subject to experience rating, which means that safe businesses can be offered lower premiums than unsafe ones.
Exclusions
Many workers’ comp laws have specific rules about who must be included and excluded from the coverage. Typically, sole proprietors and partners in businesses are not automatically included and must choose to opt-out. Corporate officers are generally included but may also choose to exclude themselves from the policy. There are also exemptions for certain family members, farm/horticultural employees, textile hall corporation employees and commission-paid real estate salespeople. Some states require specific inclusion or rejection forms for owners and officers to complete in order to avoid being charged premium for the coverage.
Injuries sustained while working outside of the scope of your normal job duties are not covered by workers’ comp. Additionally, injuries sustained while intoxicated are not covered. Some states also have specific provisions that prohibit coverage for injuries sustained while engaging in a fight with another person in the workplace. These types of exclusions are often seen on CGL policies. Expenses incurred while defending against a workers’ compensation claim are also excluded, since these will reduce the overall limit of liability on the policy.