Workers’ Compensation

What is a Workers’ Compensation policy?

Workers’ Compensation is a state mandated insurance policy.  While the details vary from state to state, all states require certain employers and businesses that hire contractors to carry this insurance.  These state mandates were designed to Workers' Comp Insuranceprovide prompt and adequate reimbursement or compensation to workers who are injured on the job, and to protect the employer against civil lawsuits.

A Workers’ Compensation policy covers expenses related to injury to employees of the policy holder and employees of an uninsured subcontractor hired by the policy holder that occur during the course of employment. When one of these employees suffers an occupational disease or injury while “on the job”, benefits are paid for various expenses.

What does Workers’ Compensation cover?

All Workers’ Compensation policies are divided into two parts: Statutory Workers’ Compensation and Employers Liability.

The first part, Statutory Workers’ Compensation, pays the benefits required by state law to be paid to injured workers when they file a claim.  Since Workers’ Compensation is a no fault policy, damages are paid without investigation into who was at fault in the incident that caused the injury or occupational disease.  The expenses are covered regardless of whether or not the incident was due to negligence or wrongdoing by either party.

While the actual benefits paid can vary from state to state, a Workers’ Compensation policy typically includes coverage for the following expenses:

– Medical bills, including rehabilitation expenses
– Weekly lost wages
– Lump sum awards for disabilities and disfigurements
– Death benefits to dependents

The weekly lost wages are typically based on a formula (a percentage of average weekly wages during the prior year) and are generally subject to a waiting period.  The benefits for lost wages are usually paid out for a pre determined number of weeks and have a minimum and maximum payroll amount.

The second part of a Workers’ Compensation policy is Employers Liability.  This allows the injured worker to file a legal claim – a civil lawsuit – against the employer for damages.  In many states, an injured worker is only allowed to claim benefits under part one of Workers’ Compensation OR under part two; not both.  However, some states do allow both sections of the policy to provide benefits.

Lawsuits filed under part two of the Workers’ Compensation policy may be related to damages or injury directly sustained by the worker, or may be filed due to third parties becoming affected due to the injury of the worker.  For example, family members can sue for loss of services, love and affection, or loss of consortium.

Typical limits of coverage for this section of the policy are as follows:

– Bodily Injury by Accident: $100,000
– Bodily Injury by Disease: $500,000 total, $100,000 per employee

Higher limits may be purchased for an additional premium charge.

What are the penalties for not carrying this state-required insurance?

Many small businesses with few or no employees decide to forgo Workers’ Compensation policies, thinking that they are not big enough to require that extra coverage.

However, these businesses typically hire people for various tasks… and it’s important to remember that the known annual premium of a Workers’ Compensation policy can be very small versus the unknown cost of a serious, uncovered injury.

Other policies, such as Accident Insurance, may cover some medical expenses but the reimbursement is much more limited compared to Workers’ Compensation.  Accident policies typically do not cover lost wages.

Furthermore, since Workers’ Compensation is a state mandated insurance policy, consequences can be severe if a business opts to skip this policy.

If an employee or a contracted worker (or an employee of a contracted worker) is injured and files a claim with Workers’ Compensation, and the employer does not carry Workers’ Compensation insurance, hefty penalties or even a lien in the amount due to the employee under the policy can be placed by the state against the organization.

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