What is Workers’ Compensation Insurance?

As an employer, you’re responsible for creating a safe workplace. But sometimes, no matter how careful you are in implementing safety procedures and protocols, workplace accidents can’t be avoided. If an employer is injured or becomes ill as a result of a workplace accident, your business is technically on the hook for related expenses, such as medical bills and lost wages. That’s where workers’ compensation insurance comes into play. When you have workers’ compensation insurance, it can help to protect your business and your finances after a workplace accident occurs. This coverage gives you the peace of mind that, if a workplace accident does occur, your policy will help to cover the expenses you could face.

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Why is a Workers’ Compensation Insurance Policy Important?

In many states, employers with one or more employees are required by law to carry workers’ compensation insurance. It’s best to check your state’s specific requirements, since they can vary depending on your state. If you’re required to carry workers’ comp coverage, then you will need to have that insurance in place as soon as you hire your first employee. If your business has employees but doesn’t carry workers’ comp insurance, you could face a penalty including fines starting at $1,000 and even jail time. The penalty varies depending on your state and the number of employees. Beside the fact that workers’ compensation insurance is required by law, it also helps to protect your business and your own financial interests. Since workers’ comp policies help to cover the costs of workplace illnesses and injuries, a policy can help you to avoid having to pay expensive medical bills or legal fees resulting from a lawsuit. Having workers’ comp insurance can also help to boost your employees’ trust in your business. Workers’ comp can help reassure employees that if they are ever injured, they will receive the financial support they need, even if they’re out of work for a while.

What Does Workers’ Compensation Insurance Cover?

Workers’ compensation insurance coverage helps to pay for several types of expenses that your business would otherwise be responsible for after a workplace accident or injury:

Medical expenses: Your workers’ comp insurance can help to cover medical expenses, like an ambulance ride, hospital visit, surgery, rehabilitation, and other care that an employee needs.
Disability payments: If an employee is unable to return to work for some time after an injury, your workers’ comp insurance helps to cover a portion of the wages that the employee would otherwise lose while they recover.
Death benefits: If an employee dies as a result of a workplace incident, your insurance can help to cover funeral expenses and financially support the employee’s family members.
Lawsuit expenses: Most workers’ compensation policies include liability insurance, which helps to protect you from lawsuits resulting from workplace injuries. If you are sued, your insurance can help to cover lawyer fees, court costs, and settlements or judgments.

What Does Workers’ Compensation Insurance Not Cover?

A workers’ compensation policy covers several expenses related to workplace injuries or illnesses, but there are several expenses that it won’t cover:

Accidents that occur outside of the employee’s work responsibilities
Accidents that occur during the commute to and from work
Accidents resulting from an employee’s intoxication
Accidents that an employee intentionally caused
Accidents caused by illegal activities at the workplace
Accidents that occur when an employee is violating company procedures and policies
Accidents sustained by employees who have previously been laid off or terminated from a job
OSHA fines that your business receives
Accidents involving clients or vendors
Work safety improvements for your workplace
Wages for an employee who you hire to replace an injured employee while that employee is unable to work

How Does Workers’ Compensation Insurance Work?

When you shop for insurance, you can compare workers’ compensation insurance quotes from different insurance companies and choose the policy that’s best for your needs. Once you buy a policy, your business will be responsible for paying the policy premiums. If a workplace injury or illness occurs, an employee will need to file a claim with your workers’ comp policy. The insurance company then works with the employee, evaluating their needs and identifying a settlement for that claim. Since the employee files a claim with the insurance company, and not with your business, your business can avoid a lawsuit and the employee receives the financial support they are owed.

How Much Does Workers’ Compensation Insurance Cost?

Your workers’ compensation costs depend on several factors, including the type of work your employees perform, your business location, the number of employees you have, your payroll costs, and your claims history.

You can buy workers’ comp insurance from private insurance programs, and some states give you the option to buy from state-funded programs.

Since so many factors can impact the cost of workers’ comp insurance, getting a personalized quote will give you the most accurate idea of what your insurance will cost. You can get free workers’ comp insurance quotes today to start exploring your options.

FAQ

Is workers’ compensation insurance tax-deductible?

Since workers’ compensation insurance is a cost of doing business, your insurance costs are probably tax-deductible. Your business tax professional can advise you on how to report your insurance expenses on your tax return.

Is workers’ compensation insurance a requirement?

In many cases, yes, businesses that have one or more employees are required by law to carry workers’ comp insurance. Specific requirements vary by state, so check your state’s workers’ comp laws to make sure your business is in compliance.

How can I save money on workers’ compensation insurance?

A history of workers’ comp claims will drive up your premiums, so keeping your insurance costs down starts with creating a safe workplace. Consider ways to improve employee safety, such as by implementing a thorough employee training program, establishing safety tools, and providing your employees with up-to-date, quality personal protective equipment. You can also shop around for worker compensation insurance. Get worker compensation insurance quotes and compare policies from different insurance companies to find the best rates today.

Paige Cerulli Paige Cerulli is a freelance content writer and journalist who specializes in personal finance topics. She graduated from Westfield State University and brings more than a decade of professional writing experience to the ConsumerCoverage team. Paige’s work has appeared in outlets including USA Today, Business Insider, and more.