Workers Compensation and Disability Insurance Plans Explained

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By Next Insurance Staff
Jun 2, 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 workers who suffer illness or injury. They are not identical, however, and few employees can use both at any given time.

Here’s what employers need to know, including where to find the best private insurance for their organization:

Insurance: Why Do You Need It?

Small business insurance provides a safety net against common risks.

The best policies help business activities to continue, even when hazards result in loss of resources. Insurance is often required by state authorities in order to get a business license, but many entrepreneurs choose to go beyond the essentials in order to protect business assets and company reputation against any event that may occur. For example, those who operate in industries like construction with complex employment regimes may need specialized coverage, like contractors insurance.

The good news is that insurance does not have to be expensive, and you don’t have to deal with an agent. Online insurance brokerages like Next Insurance now serve businesses of all sizes across a wide scope of industries. Entrepreneurs can do their own research and policy comparisons. Plus, there’s no need to rely on a broker who may have a vested interest in selling a particular type of coverage.

That includes disability and workers compensation insurance, which cover workers living through challenging circumstances.

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 illnesses or health limitations, but workers’ compensation is specifically for injuries that happened on the job. Disability insurance is for a mental or physical ailment that prevents someone from working, particularly if that ailment is not connected to a job-related injury.

The insurance coverage your business requires depends on your geographic region. There are state and federal programs for people who can’t work, including government disability insurance. Those programs might have gaps, however, that employers are expected to fill. Some states impose workers’ compensation entirely on employers, requiring that the business have coverage and not providing a state-sponsored fund.

Before you start shopping around for a new policy, talk to your local chamber of commerce or business association about your legal obligations toward those you employ.

Workers Compensation Insurance: An Overview

Most states require employers to carry workers’ compensation insurance.

Some states, like Texas, are the exception: carrying the insurance is optional. However, not having insurance means the employee can sue for job-related injuries. Indeed, in states where insurance is mandatory, not carrying coverage leaves the employer open to serious fines from the government in addition to legal action from the employee. It should be noted that even though workers’ compensation in general strikes a balance whereby an employee gets compensation and the employer cannot be sued, in the case of gross negligence, even an insured employer may end up in court.

That being said, an employer’s workers’ compensation insurance goes a long way toward protecting staff and business owners. 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.

Disability Insurance: An Overview

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 in some fashion, 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. Group disability plans through employers don’t travel with the employee if they leave for a different workplace. An employee who knows they have insurance if they stay may have additional peace of mind. They 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. 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%-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.

Where to Find the Best Plan for Your Business

There are a number of reasons why employers may want to get workers’ compensation and disability insurance for their employees.

They provide a level of protection that employees might not otherwise have; disability insurance, in particular, gives a sense of security that can engender long-term loyalty. However, business owners are understandably budget-conscious. They won’t put a lot of money into a plan unless it’s a good fit for the organization.

Reviewing the options on Next Insurance is a wise choice for many of these entrepreneurs who want to find suitable coverage that fits their budget.

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