Workers’ compensation insurance can provide benefits to employees who become ill or injured on the job, and can protect employers too. It covers medical bills, lost wages and even legal fees from litigation. Almost all states require workers' compensation insurance, but regulations can differ from one state to another.

Understand more about what workers’ compensation insurance is, who needs it and how to get a policy before purchasing coverage.

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What Does Workers’ Compensation Insurance Cover?

Workers’ compensation insurance is a type of business insurance that covers the health and welfare of workers who incur injuries on the job. Below is a breakdown of what it covers:

  • Medical expenses: If an employee suffers from a work-related injury or illness and must go to a hospital to get treated or are confined, workers’ compensation insurance can pay for their medical expenses.
  • Ongoing care and rehabilitation: If an employee requires ongoing care or rehabilitation after an injury or illness, workers' compensation insurance can cover the costs of these services.
  • Income replacement: If an employee cannot work due to a work-related injury or illness, workers' compensation insurance can provide income replacement benefits to help cover their lost wages.
  • Disability benefits: Workers' compensation insurance can also provide disability benefits if an employee cannot return to work due to a permanent disability.
  • Funeral costs: In case of a fatal work-related accident, workers' compensation insurance can cover funeral costs to help ease the burden on the deceased worker’s family.

Workers' compensation insurance helps ensure employees are financially cared for and protects against costly legal battles that could threaten a business’s cash flow.

What Workers' Compensation Insurance Doesn’t Cover

As with any insurance policy, workers' compensation has limitations. It does not cover all types of work-related injuries and illnesses.

For instance, if an employee gets injured while under the influence of drugs or alcohol, they may not be covered by workers' compensation insurance. Similarly, if an employee violates company policies and gets injured, they may not be eligible for benefits.

Generally, workers’ compensation insurance does not cover:

  • The salary of a replacement employee
  • Injuries or illnesses as a result of violating company policies
  • Injuries or illnesses as a result of intoxication or use of illegal drugs
  • Injuries or illnesses that occur after termination
  • Injuries or illnesses that were caused intentionally (e.g., a physical altercation with another employee)
  • Injuries or illnesses that occur on the drive to and from work

Who Pays for Workers’ Compensation Insurance?

Workers' compensation insurance premiums are paid for by the business or the owner. Unlike other forms of insurance, such as health insurance, there are no employee payroll deductions associated with workers’ compensation insurance.

While the cost of workers’ compensation insurance premiums can vary, having coverage protects workers and businesses from financial hardships in the event of a work-related injury or illness.

Who Needs Workers’ Compensation Insurance?

Workers’ compensation insurance requirements vary from state to state. In most states, the coverage is legally required for all employees. For instance, in Georgia, businesses with three or more employees must have workers’ compensation insurance. In Florida, non-construction businesses with four or more employees need coverage, while construction businesses with at least one employee must have coverage.

However, some employees are eligible for a workers’ compensation insurance exemption — but these exemptions can also differ by state. Certain worker categories, however, are exempt from needing workers’ compensation across multiple states. These include:

  • Farmers or agricultural workers
  • Domestic workers
  • Independent contractors
  • Federal employees
  • Sole proprietors
  • Partners
  • Employees of religious organizations

The specific circumstances under which these worker categories qualify for an exemption from coverage will depend on the regulations in your state.

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DON’T IGNORE STATE REQUIREMENTS

Business owners who fail to meet legal requirements for purchasing workers' compensation insurance may face penalties including fines, suspension of business operations or even imprisonment. However, the severity of the penalty depends on state regulations.

Where to Get Workers’ Compensation Insurance

Workers' compensation insurance must be purchased according to state regulations. In some states, you can purchase it from private insurers like Nationwide or The Hartford. In states like North Dakota, Ohio, Washington and Wyoming, you must purchase insurance through the state fund.

If your business is located in a state where you can purchase coverage through a private insurer, then the process of getting workers' comp insurance generally involves:

  1. Check your state's requirements: Each state has its own workers' compensation insurance requirements, so make sure to research these before purchasing a policy.
  2. Explore insurance providers: Research different business insurance providers that offer workers' compensation insurance in your state. A good place to start is by asking other business owners for recommendations.
  3. Compare coverage options: Get quotes from different providers to compare premiums and coverages. Some providers allow you to get quotes online while others may want you to call or visit a physical location.
  4. Apply for a policy: Once you've chosen an insurance provider and policy that meets your needs and budget, apply for the policy. Many insurers allow you to apply online after getting a quote.
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How Much Does Workers’ Compensation Insurance Cost?

Workers’ compensation insurance costs an average of $168 per month or $1,948 per year. This is based on quotes for a software development LLC in business for five years, with 20 employees, $5 million in annual revenue and $1,250,000 in annual payroll costs. The sample policy has a $1 million total policy limit, $1 million per accident limit and $1 million per employee limit.

The amount you pay for workers’ compensation insurance still depends on a number of factors, such as:

  • The industry your business is in
  • The type of work your employees do
  • The number of employees you have
  • The safety measures your business has in place (e.g., protocols, training and equipment)
  • Your claims history

Understanding Your Workers’ Compensation Insurance Policy

Workers’ compensation insurance comes in two parts: employee benefits and employer liability.

Employee benefits

Employee benefits cover medical expenses, lost wages, rehabilitation and death benefits for work-related injuries or illnesses. There is typically no limit on how much the insurer pays to cover these benefits, as long as the expenses are deemed necessary and reasonable by a medical professional. Some benefits, such as disability payments or vocational rehabilitation, may be limited in duration.

Employer liability

Employer liability covers your legal expenses in the event of a lawsuit, including attorney fees, settlements and judgments. It serves as a form of financial protection in case an employee sues over their injury or illness. However, employer liability coverage comes with limits, which you choose when you purchase your policy.

How the Workers’ Compensation Insurance Claims Process Works

Knowing how to put your workers’ compensation insurance in action is essential for any business owner. If your employee suffers from a work-related injury or illness, it’s important for you to act promptly and take the necessary steps to protect your employee’s health and rights. Below are the steps to get started.

1
Document the incident to initiate the claims process

Within 24 to 48 hours of the incident, your employee must provide details of the accident or illness, including the date, time and circumstances. However, if it’s an emergency situation, it’s important for them to seek medical attention first. If this is the case, try to get details from witnesses in the meantime.

2
Direct the employee to seek medical attention

Unless it is an emergency, your employee should seek medical treatment after reporting the incident. The medical provider can document the treatment received and medications needed, which you can use for your workers’ compensation insurance claim.

3
File a claim with your insurance provider

Once you have all the details, file a claim with your insurance company and provide documentation to your state’s workers’ compensation agency. Note that your claim should include information about the employee's injury or illness, medical treatment received and any other relevant details. It's important to file the claim as soon as possible to avoid delays in the process.

4
Wait for approval from your insurance provider

After filing a claim, wait to hear back from your insurance provider about whether it’s approved or denied.

5
Get ready for the employee to return to work

Once the employee is ready to return to work, they must inform you and the insurer. Setting up a return-to-work program can help the employer keep insurance premiums down and ensure the employee can return to work safely and successfully.

What Is a Workers’ Compensation Insurance Settlement?

A workers’ comp settlement is the financial compensation paid to an employee who has sustained work-related injuries or illnesses. It’s what is used to pay off medical bills, rehabilitation costs or even a death benefit.

Generally, once a claim has been approved, the provider will offer the injured employee a settlement amount as a lump sum or through a structured payment plan. Employees can either accept or negotiate the amount — if it’s accepted, the employee waives any right to pursue legal action against the employer related to the injury or illness.

Frequently Asked Questions About Workers’ Compensation Insurance

Workers’ compensation insurance is essential for any business owner — but understanding the details can be confusing. Get a deeper understanding through our frequently asked questions and learn cover about what workers’ comp is.

Is my business required to have workers’ compensation insurance?
Where can I get workers’ compensation insurance?
What are workers’ compensation benefits for employees?
What happens if a business doesn’t have workers’ compensation insurance?

About Melissa Wylie


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Melissa Wylie is a Content and SEO Manager at MoneyGeek. Melissa has worked in the financial content space since 2018 and has spent much of that time focused on all things small business.

Prior to joining MoneyGeek, Melissa held SEO positions at Bankrate and LendingTree. Melissa’s work has also appeared on LendingTree-owned websites ValuePenguin and MagnifyMoney.

Melissa began her career at American City Business Journals in 2015 as a reporter for the company’s women-focused publication Bizwomen. Melissa has a Bachelor of Arts in Journalism from the University of North Texas. Melissa relies on her foundation in journalism to craft content that simplifies complex financial topics to help everyone feel confident when making decisions with their money.

Melissa's other work can be read on LendingTree and Bizwomen.


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