Most businesses require both general liability and workers’ compensation insurance policies for protection. While one policy serves to shield you against claims from third-parties, another covers employees for any work-related injuries or illnesses they sustain at work.
Partnerships, LLCs and LLPs that operate for profit generally fall into this category; however, owners of some non-profit organizations may also purchase coverage.
Coverage Options
Workers’ comp insurance (commonly referred to as workman’s comp) provides medical treatment for injuries sustained on the job as well as lost wages, disability benefits and death benefits for small business owners. They can purchase this policy as either an independent policy or add it as an add-on policy in their general liability or umbrella insurance package.
Premiums vary based on various factors, such as location and the industry or occupation of an insured business. An employer’s annual payroll also plays an important role, as does their claims experience; businesses with frequent or severe claims tend to pay higher rates than those without any claim history at all. Implementing safety measures or risk management practices may often help lower premiums.
Some insurers offer discounted workers’ comp policies for businesses with excellent claims histories or safety records, while others provide rebates or premium payment plans based on actual payroll numbers instead of estimated amounts. Another option available to employers is dividend plans which reward employers with a portion of an insurer’s profits in exchange for lower base premium payments. It’s essential that you find an agent or broker-agent to explain all your options and help select an ideal policy to fit the needs of your business.
Requirements in Your State
Workers’ compensation insurance policies are almost always required by state laws in order to shield employers and employees from costly lawsuits due to workplace injuries, such as medical costs or lost wages related to their employment, as well as death benefits for family members of injured or ill employees. Most states impose mandatory worker’s comp policies with penalties for noncompliance.
When getting a quote, you will usually be required to list your company location, payroll and claims history. Some states, like Ohio, North Dakota and Washington, offer workers’ comp insurance through state funds that offer coverage even when business owners cannot find coverage in the private market.
Experience Rating is an insurance rate-setting process used in states with competitive private insurers that determines workers’ compensation premiums based on the experiences of similar businesses in a specific industry, adjusting rates based on losses experienced and economic factors that might influence premium calculations.
Owners of sole proprietorships or two-person partnerships do not require workers’ compensation insurance coverage, while it may be mandatory for corporations employing more than two officers, leasing employees from third parties, day laborers, unpaid volunteers (including family members), or stockholders with at least one share. When this is applicable to a policyholder’s corporation, the policy must include an acknowledgment that compliance has been achieved by providing this information on its FEIN page of the policy.
Getting a Quote
Many states mandate businesses have workers’ compensation coverage for employees. This coverage can help cover medical costs and lost wages incurred as the result of on-the-job injuries, protecting the employer from lawsuits related to work-related incidents. Only employees covered by their policy qualify for benefits; depending on their state this could mean exclusion of owners and certain key management personnel from coverage in order to avoid conflicts of interest.
Costing of workers’ comp policies varies based on your business’s risk level, which is determined by what kind of jobs are being offered and any potential for accidents associated with those tasks. Your location also plays a factor as some areas are more vulnerable to natural or man-made disasters that could result in loss of life and property. Industry type and past claims experience also play a factor; generally speaking, more claims your company has had means higher experience mod ratings – increasing premium costs accordingly.
Dependent upon your state and type of business you own, there are various methods to obtain workers’ compensation insurance quotes. Your agent will use information such as payroll amounts, employee numbers and job descriptions to help determine coverage and costs that best suit your company – often within minutes!
Payment Options
Workers’ comp can cover medical care and lost income until a worker can return to work, funeral costs and death benefits if an employee dies in the workplace and vocational training that allows an injured worker to reenter the workforce with restrictions set by a physician.
Rates depend on various factors, including your industry, employee count and claims history. A business with more workers’ comp claims typically pays more in workers’ comp premiums; furthermore, location may play a part as certain areas may be vulnerable to natural disasters that raise premiums.
Traditional premium payment models allow employers to cover annual premiums by setting aside an upfront deposit based on estimated payroll for the year, followed by incremental payments each time payroll runs. Although this approach can help manage premium costs more easily, it may have negative ramifications on cash flow management.
Pay-as-you-Go policies provide another alternative insurance solution, with premiums calculated based on real-time payroll data and carrier rates, reducing under or overpayment and making auditing simpler. They’re especially appealing for small businesses with jobs with inexpensive classification codes; though you still must invest up front, their impact won’t be nearly as severe on operating cash flow than traditional workers’ comp policies.
