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Workers’ Compensation vs. disability insurance

What’s the difference between Workers’ Compensation and disability insurance?

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 types of insurance provide essential support to workers who suffer a workplace injury or illness and they also have benefits for business owners.

However, there are key differences that are important for everyone to understand.

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 illness, 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 also 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 can provide important benefits after a workplace injury or illness:

  • Medical costs for emergency or ongoing treatment
  • Reimbursement of lost wages during recovery
  • Employer 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 workplace health and safety notices, including the insurance company’s name 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.

Disability insurance is usually divided into short-term and long-term disability, with benefits provided for days, weeks or even for life depending on the claim.

Unlike workers’ compensation — required by law in almost every state if you have employees — 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 and the insurance provider.

Many workers’ compensation plans provide additional payments if the employee is permanently impaired or dies on the job.

Disability coverage also pays a fraction of salaries, sometimes 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.

NEXT helps business owners get Workers’ Comp at an affordable price

NEXT specializes 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.

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* To the extent permitted by law, applicants are individually underwritten, not all applicants may qualify. Individual rates and savings vary and are subject to change. Discounts and savings are available where state laws and regulations allow, and may vary by state. Certain discounts apply to specific coverages only.
** The cost data presented here are based on NEXT active customers in the U.S. who purchased general liability insurance over the previous 12 months. These data should not be considered a substitute for obtaining a quote specific to your business. These data were updated in July 2022.
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