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Workers' Compensation

Workers' compensation insurance, which is mandated for most businesses by state law, provides coverage for employees who are injured or disabled on the job. It differs from most types of insurance in that the named insured — the business — is not the direct recipient of policy benefits. Instead, benefits are provided directly to entitled employees.

Keep in mind that workers' compensation is regulated on a state–by–state basis, and the information presented here is simply a guideline. Your insurance provider or state insurance department can provide more specific information.

What does it cover?

Workers' compensation coverage applies to employees' injuries or diseases resulting from employment. Almost all employees are covered, including part–time and temporary workers, with a few exceptions that may vary from state to state (e.g. sole proprietors). Coverage begins on the employee's first day of work. Standard benefits for covered employees generally include:

  • Medical: Payment of all necessary medical treatments and related health care costs.

  • Temporary disability: Payment of two–thirds of the employee's average salary, subject to a maximum amount.

  • Permanent disability: Payment of a portion of lost wages. The amount of payment may vary according to the severity of the disability.

  • Vocational rehabilitation: Payment for services such as job retraining and placement if the employee cannot return to his or her previous job.

  • Death benefits: Payment to the employee's dependents for burial expenses and partial replacement of the employee's salary.
Workers' compensation policies often include employer's liability coverage, which provides protection against lawsuits brought on by employees for work–related bodily injury.

What factors affect my premium?

There are major considerations that may affect your workers' compensation premium.

Location: Because workers' compensation insurance is regulated state–by–state, premiums may vary depending on your business' location. Some states have minimum premiums.

Industry/job classifications: Workers' compensation premiums are determined, in part, by the risk of injury or disease associated with the type of work performed by your employees. This can be a function of your industry as well as the specific duties performed by your employees.

Modification factor: Your modification factor is a rating based primarily on your claims history, relative to the average claims for businesses that are in your industry and located in your in state. Both the frequency of claims and the dollar amount of losses are taken into consideration, with greater weight on the frequency of claims.

The modification factor is used by insurance providers as a tool to help predict future losses. As a result, an above–average rating (indicated by a modification factor less than 1.00) may result in lower premiums, while a below–average rating (indicated by a modification factor greater than 1.00) may result in higher premiums.

Liability limits: A liability limit is the maximum coverage you can receive for employee claims. Workers' compensation policies typically contain three different liability limits:

  • A claim limit per employee accident, per year

  • A policy limit for the combined annual claims of employee diseases

  • A claim limit per employee disease, per year
Standard liability limits include the following: $100K, $500K, and $1 million. Higher limits tend to result in higher premiums.


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