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Small Business

The difference between Workers’ Comp vs. disability insurance

Matt Crawford image
By Matt Crawford
Oct 23, 2020 min read

Small business owners have an obligation to protect their employees. One of the most common ways of doing so is to provide workers’ compensation and disability insurance.

These plans provide essential support to business owners and workers who suffer a workplace injury or illness. However, there are key differences that are important for everyone to understand.

Workers’ comp vs. disability insurance

It is easy to confuse workers’ compensation and disability insurance.

They both provide financial help to employees when they cannot work because of an injury or illnesses, but here’s the main difference:

  • Workers’ compensation is specifically for injuries or illnesses that happened on the job.
  • Disability insurance is for injuries or illnesses that occur outside of the workplace.

Simple enough. However, you’ll need to consider a variety of factors to decide the types of workers’ comp and disability insurance that are best for your business.

Workers’ Compensation insurance

Most states require employers to carry workers’ compensation insurance. However, not having insurance means you can be held responsible for covering expenses for job-related injuries. Those costs can be much higher than the cost of insurance if you or an employee need ongoing treatment.

There are three key areas where workers’ comp provides important benefits after a workplace injury or illness:

  • Medical costs for emergency or ongoing treatment
  • Reimbursement of lost wages during recovery, up to the policy limit
  • Employers liability protection from lawsuits

When it’s required by state law, not carrying coverage can leave you open to serious fines from state regulators and legal action from your employees.

The employer has additional obligations, too, such as informing workers of their legal rights. That’s achieved through posting health and safety notices in the workplace, including the name of the insurance company and how to report an accident.

In the event of injury, the employer usually has to give the worker a claim form within 24 hours of learning about the incident. Learn more about workers’ comp claims.

Disability insurance

Compared to workers’ compensation, disability insurance is quite different.

In this case, the ailment that stops a person from working doesn’t have to happen on the job. This type of coverage is divided into short-term and long-term disability, with benefits provided from a matter of days or weeks, to years or even for life.

Unlike workers’ compensation, which almost every employer must provide, disability insurance is usually optional. According to the U.S. Bureau of Labor Statistics, 42% of workers employed by private industry had short-term disability coverage while 34% had access to long-term disability benefits in 2018.

Many employees choose to supplement employer-paid disability insurance with their own private plans. These policies may work in conjunction with government-funded social security disability, depending on the individual circumstances.

As an employer, disability benefits may be one way to improve employee satisfaction and retention. Employees know they won’t be on their own if something happens in the future that impedes their ability to work.

What do these insurance plans cover?

Typically, neither workers’ compensation nor disability insurance pays employees their full salary while off work.

Workers’ compensation may pay partial wages, such as two-thirds, and medical bills. Coverage varies based on each state’s regulations.

Sometimes, workers’ compensation also provides funding for job retraining. Once the employee’s medical condition stabilizes, he or she may be eligible for disability if returning to work is still not possible. If the employee is permanently impaired, some workers’ compensation plans provide additional payments.

Disability coverage also pays a fraction of salaries, anywhere from 50% to 60%. The length of support from this kind of insurance depends on each individual’s circumstances. If he or she is unable to return to work, long-term disability may provide lifetime compensation.

Employees who may be eligible for disability file claims directly with the insurer. Whether or not the employee qualifies for payments under the plan depends on the policy’s specific wording. It may or may not model the eligibility criteria outlined for state and federal disability programs.

Next Insurance helps business owners get Workers’ Comp at an affordable price

We specialize in helping small business owners find the right workers’ comp converge at an affordable price with our painless online process.

Simply answer a few basic questions about your business to get an instant quote and explore coverage options. Our licensed, U.S.-based insurance advisors are ready to help you if you have any questions.

Start an instant quote today.

Learn more about Workers’ Comp

Matt Crawford image
By Matt Crawford
Matt Crawford is Associate Content Director at Next Insurance and a small business insurance specialist. He has worked throughout his career to help small business owners grow and protect their businesses.
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