Understanding Your Options for Workers Comp Insurance
As a business owner, an essential part of your management responsibility is keeping workers safe and satisfied. You want to take care of your employees to show them your appreciation, but it's also a legal requirement in most states, and it protects you as well. To provide the best possible coverage for your workers, you want to have a firm understanding of workers' comp before purchasing a policy or switching providers.
What is Workers' Comp Insurance and What Does it Cover?
Workers' compensation insurance, or workers' comp, is an insurance plan that provides financial coverage should an employee be injured on the job. At its core, workers' comp serves three primary purposes:
- 1. It protects the policyholder (the business owner or manager) from out-of-pocket expenses when an accident occurs onsite.
- 2. It ensures that injured employees have access to quality care and are compensated for lost wages during recovery.
- 3. Some (but not all) workers' comp policies help cover the policyholder's legal fees and settlements should an employee sue after an incident.
Workers' comp covers expenses related to fatalities, illnesses, or injuries sustained onsite or while an employee is operating within the normal scope of their employment. For example, if an employee is driving a company vehicle offsite while performing work duties, they'd be covered by workers' comp if an accident occurs.
Note that workers' compensation applies regardless of who is at fault for an incident unless prohibited or illegal actions lead to the accident.
Do I Need Workers' Comp Coverage for My Business?
States, not the federal government, set the rules and regulations regarding workers' comp insurance. With the exception of Texas, every state requires businesses to have some form of workers' compensation.
While it generally doesn't matter how many people you employ, some states do exempt businesses with very few employees, but the threshold varies by state. For example, Alabama does not require this insurance for companies with fewer than five employees. Some states also have laws that exempt coverage for independent contractors or workers who earn solely based on commission.
While state laws vary, every business owner should consider purchasing workers' comp insurance even if it's not required. Even if you only have one or two employees, one accident for which you are liable can financially devastate a business and even lead to bankruptcy.
What Factors Will Impact My Premium?
Your premium is the regular payment you make to an insurance company or state fund for workers' comp coverage. One significant factor that determines how much you pay is the risk factors associated with your industry. High-risk, dangerous work—logging, construction, steelwork, work with hazardous chemicals, etc.—command higher premiums. Insurance providers use a classification system to compare industry risks.
Other determining factors include:
- Total payroll
- Your company's claims history
- Your experience rating
- The location of your workplace and the frequency of natural disasters
- State taxes and fees
What Are My Options?
Your options for workers' comp insurance policies depend on the state in which you operate. Every state has either a monopolistic or competitive state fund; the type of fund your state offers determines what options you have for coverage.
- Monopolistic– A monopolistic state fund is one that requires all companies within the state to buy their policies through the said fund. In other words, companies operating in states with monopolistic state funds do not have the option of purchasing workers' comp from a private insurer. Ohio, Wyoming, Washington, and North Dakota all have monopolistic state funds.
- Competitive– In states with competitive state funds, businesses can choose to purchase their workers' comp insurance from the state fund or from a private insurance company. The majority of U.S. states have competitive funds.
The majority of businesses operating within the U.S. have state fund workers' comp insurance policies or private insurance. However, in some states, companies have the option to self-insure.
Tips for Choosing the Best Policy
If you're a business owner in search of a new workers' compensation plan, consider the following tips:
- First, know your state’s laws and requirements so that you are aware of your limitations and options for purchasing a workers’ comp policy.
- Take a good look at the risks workers face in your industry and your specific job site. The riskier the workplace, the more coverage you may need. Work with an expert insurance broker or agent who can explain your requirements and educate you about the options.
- Take all reasonable steps to make your workplace safer before shopping for a policy. Have clear safety policies and procedures, workers safety training, all necessary safety gear, and a plan for accidents and injuries. With these in place, you may be able to get a better deal on a policy.
- Even if you already have a workers' comp policy, be sure to review it, and to continue to go over it every year. As your company evolves, so will your insurance needs.
Prioritizing Employee Care
Being a good employer means not only preventing workplace injury but have a concrete plan for action should an incident occur. Accidents can happen even if you have the best safety measures in place, and you'll need financial protection for the sake of your employees and your own wallet. Take the time to understand your workers' comp policy options, and choose the right policy for your company's specific needs.