Workers Compensation
Workers compensation insurance, also referred to as workman's comp and workers comp insurance, is designed to help businesses pay for medical expenses if an employee is injured on the job. It can also help pay the employee for lost wages and, in the case of fatal injuries, provide death benefits to the family.
In a nutshell, workers comp insurance protects both the employer and the employee in case of accidents and injuries at the workplace. It ensures that the employee is able to get the medical care they need while also ensuring that business owners are able to pay for that care – which can sometimes cost tens of thousands of dollars.
Did you know?
Based on recent data from the National Council on Compensation Insurance, the average cost for all workers comp claims combined in 2019-2020 was $41,353.
What's covered by workers compensation insurance?
Workers comp insurance covers employees who are injured at the workplace – or anywhere else – while in the course of doing their jobs. It will help pay for medical expenses and even lost wages that may result from the injury.
A workers compensation policy will typically cover the following:
Medical and rehabilitation expenses resulting from the injury or illness
Lost wages, or replacement income, for the time the employee is unable to work
Financial compensation for any permanent injuries
In worst case scenarios, this coverage will also help pay death benefits to surviving relatives if an employee is fatally injured while working.
For example, according to the Insurance Information Institute (III), "the leading cause of workers comp death claims is traffic accidents that occur when the employee is in a vehicle for work purposes."
It's important to note, however, accidents that occur on the way to or from work are not covered by workman's comp.
How does workers compensation insurance work?
Say an employee was unloading boxes from a truck when he fell and broke his arm. He needed to have surgery on the arm and was unable to work for more than three months.
Workers compensation insurance would help cover his hospital and doctor bills, as well as the cost of seeing a physical therapist if needed. It would also help cover his lost wages for the time he was unable to work, typically a percentage of his weekly wage.
But exactly what is covered and for how long will vary a great deal by state so it's important to understand the requirements and nuances in any given state.
Links to state resources can be found on this map from the U.S. Department of Labor.
What are the limits on workers compensation insurance?
Workers comp varies from other types of insurance in that there is no limit or "ceiling" on the policy. According the III, "the insurance company accepts a transfer of the employer’s entire statutory obligation—whatever the employer is legally obligated to pay as a result of the injury."
Here again, however, a business's financial obligation to an employee will vary depending on state.
Who needs workers compensation insurance?
The short answer: basically all businesses with one or more employees.
In fact, all states except Texas require businesses to carry workers compensation insurance. But some states may make exceptions if the business is a sole proprietorship or LLC.
When it comes to understanding who needs workers comp insurance – and how much – it's essential to check the Bureau of Workers Compensation for state guidelines.
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