Insurance for Your Small Business

Workers' Compensation

All businesses are generally required by state law to purchase workers' compensation insurance on their employees. Although there are still some occupations that are exempt, about 90% of workers now fall under workers' compensation laws. These laws dictate that you, as the employer, are responsible for the costs of any employee injuries that arise out of any employment-related injury (or illnesses from a disease caused by the job), regardless of fault. So, if you have employees, you will need to secure this coverage immediately.

Be aware that although workers' compensation insurance is very wide-ranging, there are complexities and exclusions, of which you should be aware when purchasing such a policy. For instance, coverage does not apply to damages you cause intentionally. In addition to what is covered here, your insurance agent or broker should be able to help you better understand the details of your coverage.

In some states, only the state is allowed to sell workers' compensation insurance. In some states, private insurers compete with state workers' compensation insurance providers. In other states, coverage is sold by private insurers only, and if you cannot get coverage, you may have to purchase it from government-mandated assigned risk plans, also known as "pools." In many areas, it is difficult to find private insurers in this field.

Because of restrictions mandated by states, many insurers no longer offer workers' compensation. If you can't locate an insurer, one thing you can do is to seek out a group plan, which pools a group of smaller buyers, collects all the premiums and loss experiences, and then evenly distributes dividends to the group members if there is a favorable loss history. Group plans are often located through trade associations, sometimes through brokers or agents, and are also referred to as safety groups.

Here is a summary of some other key points that will help you to better understand workers' compensation coverage:

  • Premiums are determined by the type of work your employees perform (i.e., their occupational class), so you must be sure that you have your employees' occupations properly classified; otherwise an insurer could discover the error, adjust your premium, and retroactively collect or refund for the past three years.
  • If you use contractors, you should secure certificates of workers' compensation insurance from them. Contractors who use subcontractors should also get certificates from those people with whom they work. This will help you if your policy is audited. An auditor will reconcile your records to the payroll estimates on which your premium was calculated.
  • Be aware of any "special working relationships" and their possible impact on your coverage. This might include "employees" who are not necessarily covered by your policy, including independent contractors, voluntary workers, owners and officers, and individuals working outside your coverage territory.
  • When an employee reports an injury, assist in getting immediate medical attention, and immediately give your employee claim forms to report the incident. Notify the insurance company within 24 hours of the injury. Various state laws impose heavy penalties for delay. Check with your insurer or state workers' compensation office for details on handling claims.
  • One piece of good news for you as the employer: Employees covered under these laws generally do not have the right to file suit for job-related injuries and illnesses.
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