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Getting Worker’s Compensation Insurance – Beginner’s Guide

Workers’ compensation insurance is the oldest form of insurance in most developed countries. It was developed to provide coverage for business owners because, in the past, workers had to sue their employers to get compensated whenever they sustained injuries or fell ill as a direct result of their jobs.

The world is generally a risky place, and so is the working environment. Most employers try their best to keep the working environment safe for their staff. Even the most carefree business owners put in place some measures to protect their employees from potential work-related dangers. This is because they understand that workers’ compensation is very important.

Even a thousand safety measures and precautions won’t completely eliminate the possibility of an accident or unforeseen disaster that may harm employees. However, not all employees understand that having worker’s compensation insurance is actually a legal obligation for them.

A couple of years back, a Chicago-based factory worker had his left little finger chopped off by one of the factory machines while he was on his job. This caused serious problems for the man. He couldn’t continue his job, so he won’t be paid subsequently as an employee. Yet, he had a family to cater to. Fortunately for him, however, his employer had a workers’ compensation policy, and he was given a huge sum as compensation.

Workplace injuries happen all the time. No one plans or prays to be a victim, but they do happen. And when they happen, they cause big disagreements between victims and their employers as to who bears the cost of treatment and other expenses related to the injuries or illness suffered.

When employees sustain injuries or even die in the course of carrying out their duties, they or their families might sue the company/employer for negligence or request some form of compensation. Most of the time, when workers sue for claims after suffering an injury or illness as a direct result of their job, they eventually lose the case, which means they are abandoned to suffer.

In such lawsuits, employers usually claim the assumption of risk on the part of the affected employee (that is, they claim the affected employees already understood and accepted all the possible mishaps they could face on the job).

Similarly, they could claim it was contributory negligence, which means negligence or carelessness on the part of the affected employee caused them the injury or illness. Either way, the employer can’t be held liable. This is why governments in some countries made it compulsory for companies to insure their workers against job-related injuries and illnesses.

This is where worker’s compensation insurance comes in handy. If you are a business owner, this post will help you understand everything you need to know about workers’ compensation insurance—at the surface level, at least. Even if you have known one or two things about it before now, you are sure to learn more from this article.

What is Workers’ Compensation Insurance?

Workers’ compensation insurance is a type of insurance coverage that protects your employees in case of injury or diseases during the course of employment by providing them with wage replacement and medical benefits. These benefits are in exchange for mandatory relinquishment of the employee’s right to sue his or her employer for negligence.

A workers’ compensation insurance policy can provide coverage for injuries or loss of limbs, illnesses such as emphysema or asthma, injuries caused at work (such as repetitive motion injuries), medical treatment, and rehabilitation needed for injured employees to be able to return to work, lost wages (up to two-thirds of the employee’s salary), liability insurance for the company for lawsuits filed by injured employees, and death.

Who Needs Workers’ Compensation Insurance?

This is usually the first important question that business owners ask when the topic of worker’s compensation is brought to their face. Interestingly, this question is mostly asked in a desperate search for a reason to avoid the insurance, not out of interest in the insurance.

Now, here is the answer: workers’ compensation insurance is for businesses with one or more employees. So, sole proprietorships and partnerships are not required to purchase workers’ compensation insurance—until they have employees who are not the owners. Though owners of such businesses can cover themselves for workers’ compensation if they choose to, this is not required.

Note, however, that rules vary by state and country regarding which businesses are required to purchase worker’s compensation insurance. For example, in some states in the U.S., businesses that pay their employees by the commission are not required to purchase workers’ compensation insurance.

So, you need to check with the workers’ compensation regulators in your state or country to know what obtains there. But the fact is that any business with any employees working either full-time or part-time is vulnerable to extensive out-of-pocket costs if an employee sustains an injury or falls sick while on the job. This means that not having worker’s compensation insurance does not absolve any business from having to pay for the costs of work-related injuries or illnesses.

How Worker’s Compensation Insurance Works

Worker’s compensation insurance pays employees’ medical bills and expenses for the treatment or management of injuries, illnesses, or disabilities caused by their job. Workers for small businesses, for example, can get compensated to the tune of $500,000

The workers’ compensation insurance policy takes off the need for going to court or hiring a lawyer, and it ensures that affected workers are duly taken care of. In many companies, there is usually a defined insurance package that clearly states the benefits workers would get in the case of work-related injuries or illnesses, so such employees won’t be allowed to file a suit.

Even when the injury resulted from negligence on the part of the employee, a payout is still made to them. Rehabilitation is also covered if needed. But in the case where death occurs, the family of the deceased worker gets compensated.

If a worker gets injured or suffers a disability while on the job, it might be wise to consult a lawyer just to ensure their claims and benefits are duly paid. In an instance where the employee fills a form to state their claim and the employee contests the claim, then heading to the court might be the best step.

Injuries like chemical contamination, exposure to harmful radiation, loss of sight, loss of hearing, and fire incidents that cause severe burns are some of the injuries or accidents that could occur and that deserve compensation.

In the case where settlements are being offered to an injured worker, it is wise to ensure that additional medical expenses won’t show up in the future. Before issuing the compensation, most insurance companies have a doctor access the injury or illness, examine the worker and report the state of the worker’s health.

A workers’ compensation insurance policy has two parts:

  • Part One (statutory compensation)
  • Part Two (Employee liability coverage)

Part one: Statutory compensation

Primary concerned with ensuring full protection of the employee, this part of your workers’ compensation insurance policy, provides compensations that are based on each state’s rules for compensating employees who sustain injuries or fall ill as a direct result of their job. It ensures that all medical and rehabilitative expenses that result from the injury or illness are paid in full to the employee.

This part of workers’ compensation insurance also provides for loss of wages coverage for an employee who is unable to work due to a work-related injury or illness.

Part two: Employee liability coverage

Unlike the first part, this part of your workers’ compensation insurance policy is subject to limits beyond which the insured is responsible for.

For example, if your business has a coverage limit of $1.5 million but is successfully sued by a sick employee for $2.5 million, your business is responsible for paying the extra costs out-of-pocket. That’s where this second part of your workers’ compensation insurance comes in. Some of the situations covered by worker’s compensation insurance include the following:

  • Work-related diseases such as repetitive motion, emphysema, etc.
  • Loss of limbs
  • Loss of wages
  • Medical rehabilitation costs
  • Medical treatment bills
  • Temporary disability
  • Permanent disability
  • Legal representation
  • Death

Types of workers’ compensation insurance

If you are an employer, there are various ways you can insure your business against the above-listed situations. These include:

a. Private Insurance

This involves getting workers’ compensation insurance yourself directly through an agent or your insurance company. If you want to go with this option, be sure to search for the best quotes and rates before you buy. You should also fully understand the terms, conditions, and clauses attached to the policy to avoid misunderstanding and ambiguities when you need to make claims.

b. Self-insurance

Many states also give employers the option of insuring themselves. However, you must be able to show proof of your financial ability to insure yourself. In addition, you must apply and be approved by the regulatory board in charge of worker’s compensation insurance in your state before you can be allowed to self-insure. There are three major types of self-insurance:

  • Individual self-insurance-: This involves personally insuring your company and it requires you to post a security deposit with the board. The deposit could be in form of a letter of credit, surety bonds, or cash.
  • Group self-insurance-: This option allows a group of companies to come together to insure themselves.
  • Local government self-insurance-: Counties, districts, villages, and towns are automatically considered to be self-insured unless they purchase workers’ compensation insurance.

How to Get Workers Compensation Insurance in 6 Steps

1. Research your state’s workers’ compensation laws

Every state has its own worker’s compensation laws and requirements. Therefore, it is important to take time to research and understand the laws of the state in which you operate your business. If you have branches of your business in different states, you also need to be aware of all the laws in the various states you operate in.

2. Gather pertinent information about your company

Once you have understood all the laws and what is required of you, the next thing you should do is put together all the necessary information about your company. These include employee information, business description, company addresses, safety procedure checklists, pictures of your facility, and several other supporting documents that would make it easy for the insurer to determine premiums and insurance rates.

3. Contact a commercial insurance agent who has experience with worker’s compensation coverage-: Search for a very good insurance agent who is experienced with worker’s compensation insurance. He would be able to give you the necessary advice and provide you with the best quotes.

4. Shop around for the best coverage at the best price-: Be sure to get as many quotes as possible and consider each of them before settling for the most suitable option for you.

5. Choose a carrier and purchase your workers’ compensation policy

6. Update Regularly-: Make sure you continue to update your workers’ compensation insurance policy as you employ more employees or as old employees leave.

4 Documents Required to Get Workers Compensation Insurance

  • Business license-: You must provide proof that you have the license to run the kind of business that you are engaged in.
  • Proof of business liability insurance-: You must also be able to show evidence that other aspects of your business have been duly insured as well.
  • Proof of the number of employees-: Some states would only require you to provide workers’ compensation insurance if you have more than three employees working for you. This also includes part-time employees that work regularly, such as weekend employees.
  • Coverage waiver forms-: Some states also allow up to five officers to waive worker’s compensation insurance on themselves. In this case, they would be required to fill out and submit some specific forms to be submitted to their insurance carriers.

How Much Does Workers’ Compensation Insurance Cost?

In the case where a worker with a disability returns to work, either fully recovered or not, there are compensations put in place for them. For example, there are temporary partial disability benefits (for partial recovery) and total disability benefits (for no recovery).

A worker’s level where he or she works and the amount he or she earns also determine the amount to be paid in compensation should the worker suffer an injury or a disability case occur. The state where a worker performs his or her duty, the frequency of occurrence of a particular accident, and the mode of operation on the job are also factors that determine how much is to be received as compensation.

Employers are solely responsible for ensuring that staff is fully protected, are not cheated, and are duly compensated in the case of an accident. The cost of workers’ compensation insurance varies widely based on various factors.

Controlling workers’ compensation insurance cost

The typical huge cost of workers’ compensation insurance is the main reason why many business owners shy away from this important protective policy. But there are many ways to ensure that your workers’ compensation insurance cost is not out of control. Some of them are discussed below:

a. Improve workplace safety

The higher the likelihood that your employees will fall sick or sustain injuries as a direct result of their job, the more you will pay in workers’ compensation insurance costs. So, you need to improve safety in your workplace to reduce your premiums. Start by communicating the importance of safety to your employees. Put in place various safety measures, and enlighten your employees on the need for those measures. Also, teach your employees how to ensure safety at their jobs at all times.

b. Take advantage of trade associations and affinity groups

Many trade associations and affinity groups, such as local chambers of commerce, sponsor workers’ compensation insurance programs that can offer substantial savings on premiums. Check if you can find such discounted insurance opportunities in your state or country.

c. Avoid assigned risk

Assigned risk is used for businesses that represent unusually high risk or have an extensive claim history. A business might be considered an unusual risk because it is new or its employees engage in dangerous work. Many insurance agents will submit all new workers’ compensation policy applications to the assigned risk pool without notifying policyholders. So, you should always ask and insist on knowing whether your policy was issued as an assigned risk.