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Workers’ Compensation Insurance

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What Is Workers Compensation Insurance?

Workers’ Comp is essential coverage for businesses with employees, that protects both the employee and the business in case of an accident, illness, or even death occurring while working or in work-related activities.  

The system was created to ensure workers would be taken care of without bankrupting the employer. The coverage is “no-fault” to reduce the costs associated with assigning blame and focus paying for medical expenses, covering lost income, and even supporting the dependents of employees who are hurt or killed due to workplace accidents. 

Because of the essential nature of this coverage, it is legally required in most states for businesses with employees and there can be significant penalties for non-compliance.  In a few states where Workers Comp coverage is not required workplace injuries may have to be resolved in the potentially more costly tort system. Given that claims against employers can run into the tens of millions of dollars for a single injury in the event of severe disability and medical need, this can bankrupt businesses and potentially their owners. There are many reasons that its an intelligent business practice to purchase workers compensation for your employees.

  • It may be legally required coverage in your state and you may be subject to a fine if you do not adhere.
  • It can protect you and your business from extremely large losses that could put you out of business or possibly bankrupt you.
  • It demonstrates to your employees that they will be cared for, even in the event that they suffer a loss that would be too large for their employer to handle on their own.

What is the Purpose of Workers Compensation Insurance?

Workers’ compensation insurance for small businesses is a key part of your company’s growth for a number of reasons. Here are a few of them:

It Makes Financial Sense – for Everyone

Workers’ compensation coverage protects both employers and employees. Let’s say human error, equipment malfunction, or just plain bad luck leads to an employee breaking his leg in two places while he’s working. He’s going to need x-rays, possibly surgery, physical therapy, and at least a few months of recovery until he can do his job again. Small business workers’ comp will cover all those expenses so that the employee is not saddled with the financial burden. 

Even if you are a sole proprietor, you may want to consider getting workers’ comp insurance for self-employed professionals. This kind of policy can cover you in cases that aren’t covered by your personal policy but may overlap in a number of ways. In some cases, your personal health insurance may specifically exclude workplace accidents which the insurer decides should be covered by a workers’ comp policy, so having workers’ comp is essential.

It Proves You Don’t Cut Corners

A trusting relationship between employers and employees can make a significant difference in productivity levels. When employees know that you have their back in both good times and bad, they are more invested in their work and focused on the job at hand. Proving you take care of your employees will help you attract and retain the best workers in your area.  

It May Be Mandatory

Most states require employers to provide some type of small business workers’ compensation insurance for their employees. In some states, employees must be covered by state-operated funds called monopoly state funds. However, coverage isn’t mandatory for every industry and the workers’ compensation requirements for small businesses can even change from county to county, so be sure to do careful research into individual workers’ comp employer obligations.  

It’s important to note that for contractors, workers comp may be a requirement in order to bid on contracts. Due to a legal requirement around contractors’ worker’s comp insurance, some clients will require you to show that you carry workers comp for contractors, even if you’re a sole proprietor.

What Does Workers Compensation Insurance Cover?

Medical Expenses

Coverage of medical expenses vary depending on the injury, but a comprehensive workers’ comp insurance policy will cover everything including diagnostics, treatment, and rehabilitation. So, in the broken leg example, we discussed earlier, the employee would be reimbursed for x-rays, surgery, and physical therapy during the recovery period.

Loss of Income

For people in very physical jobs, even a small injury can make it difficult, or impossible, to work safely. This coverage enables an injured employee to take off the time they need to recover without worrying about paying the bills. While this coverage is often only a portion of their full salary, in many cases, it is far better than having no income coming in.


Some injuries can prevent employees from ever returning to the same job. In this situation, workers’ compensation insurance will pay for the employee to learn new skills and enter a new field.

Permanent Injury

You’ll notice a wide variety in the coverage of permanent injuries and disability between different policies. This depends on the insurance company as well as the requirements of each individual state and county. However, in most cases, it will take care of an employee who has been injured seriously enough that they can no longer work, in any field.

Survivor Benefits

This is the section of the insurance policy that is paid to the family of an employee killed on the job. It can include anything from funeral costs to long-term income replacement.

What is Employers Liability Insurance (ELI)?

Employers Liability Insurance covers additional damages that may be caused by the employers’ negligence. This coverage is outside of the medical bills and lost wages that would be covered by workers’ compensation insurance. Types of ELI claims include:

Third-Party Action

An injured worker, in addition to collecting Workers Compensation benefits, sues a third party that they believe to be responsible for the injuries, and the third party files a lawsuit against you. For example, the injured worker sues the property owner of the site on which they were injured, and the property owner shifts its liability to the employer

Loss of Consortium

The immediate family of an injured worker sues the employer for injuries resulting in the loss of a family relationship, such as companionship, help with household duties, and others.

Dual-Capacity Suit

An injured worker sues the employer based on a secondary relationship the employer shares with the employee, whether as a supplier of a product, provider of a service, owner of a premise, etc. For example, the employee is injured in a facility owned by the employer, and files claims against the employer as the landlord.

Consequential body injury

The immediate family of an injured worker sues the employer on the grounds that, as a result of the injury sustained by the worker, the immediate family members also suffered injuries. For example, the brother of an injured employee develops back pain from taking care of the employee.

What Isn’t Covered by Workers Compensation Insurance?

Most companies in dangerous industries have clear safety policies, sometimes over and above state requirements. Workers’ comp often will not cover employees who are hurt while violating these policies and regulation. They’re also not covered for injuries sustained off the job. Some states even demand drug and alcohol testing and don’t cover employees who were using drugs or alcohol when injured.

Policy Violations and Misconduct

Workers’ comp policies do not cover injuries resulting from a violation of the law. Examples include intentional injury, knowingly employing employees in violation of the law, failure to comply with health or safety regulation, and coercion or discrimination against any employee. 

Incidents involving drugs or alcohol

Many states exclude injuries caused by the worker’s intoxication, by alcohol or other regulated and banned substances. Laws in certain states permit an employer to deny a claim if the worker tests positive for elevated levels of illegal substances if the test is administered within a certain amount of time of the accident occurring.

Injuries not connected to work

Injuries that happen when an employee is not performing activities that benefit the employer are excluded. Examples include injuries those arising from commuting to and from work, voluntary recreational activities while at work, or horseplay and fighting occurring at the workplace that are not work-related. Depending on the state you are doing business in, definitions for what activities qualify as directly benefiting the employer may differ, and what is covered may differ as a result. 


Policy violations

Policy violations

Incidents involving drugs or alcohol

Incidents involving drugs or alcohol

Injuries not connected to work

Injuries not connected to work

This is a brief summary of your policy and does not supersede the policy documents. If you want full details, please call us.

How Much is Workers Compensation Insurance?

The cost of workers compensation insurance varies based on a wide variety of factors and is as individual as the business owners themselves. Whether workers’ compensation insurance costs the employer almost nothing or a large percentage of the operating budget depends largely on the industry and its associated risk levels. However, it also varies widely from state to state due to the differing requirements of each state. To find out exactly how much workers’ compensation insurance will cost, you’ll have to get a quote that is tailored to your industry, location, and specific needs.


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