What is Workers' Compensation?

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Understanding Workers' Compensation Insurance
Workers' compensation insurance is designed to protect and provide for employees who are injured or become ill in the course of their job duties. Such insurance generally pays for the costs of medical procedures, rehabilitation and job retraining resulting from the employee's work-related injury or illness. It also reimburses an injured employee for wages lost due to such an injury or illness and provides death benefits to family members should an employee be killed while at work. Employees who receive payments through a workers' compensation system cannot sue their employer in connection with the injury or illness.

Who Must Carry Workers' Compensation Insurance?
The laws governing workers' compensation vary from state to state. Most states have a workers' compensation board that sets regulations. The federal government administers a special workers' compensation program for federal employees. Many states exclude certain types of laborers from workers' compensation coverage requirements. Small businesses with few employees may not be required to carry workers' compensation insurance.

Many state governments maintain a workers' compensation fund to assist employees whose employers have neglected to carry insurance coverage as designated by law. Such funds are generally supported by taxpayer contributions. Employers in states that do not mandate workers' compensation insurance may choose to carry such coverage to prevent lawsuits related to workplace injuries and illnesses. In these states, employees can generally decline to participate in workers' compensation programs.

Purchasing Workers' Compensation Insurance
Business owners who are required to carry workers' compensation coverage have several options for purchasing this type of insurance. Employers in most states can purchase workers' compensation insurance through a private insurance company. The costs of such policies can vary significantly depending upon the industry in which the business operates and the number of employees it needs to cover. Business owners whose employees are at a high risk for injury may need to pay higher premiums than those business owners who operate relatively low-risk operations. Some states allow insurance companies to give discounts to businesses who meet certain workplace conditions criteria.

A handful of states require employers to participate in a publicly-funded workers' compensation program. Employers in these states must be sure that they meet all state regulations governing participation in that particular program. State-run workers' compensation programs are often called monopoly funds. The cost an employer pays for insurance will be based upon business size and industry. Individual states may also consider additional factors when determining program costs. Some states allow employers to meet their workers' compensation coverage requirements either through participation in a state-run fund or through purchasing private insurance.

In states where employers are free to purchase workers' compensation insurance through a private company, they can do so by contacting an insurance provider. Some industry-specific business associations have partnered with insurance firms to offer coverage packages that include workers' compensation insurance. Participating in such programs is ideal for businesses in high-risk industries.

In general, private insurance companies will evaluate a company's workers' compensation track record and level of risk when deciding upon premium and deductible costs. These rates are generally calculated using a formula designed by the National Council on Compensation Insurance (NCCI). The NCCI gathers statistical data about worker injury rates and helps insurance companies design workers' compensation forms that meet state and federal guidelines.

Understanding What Workers' Compensation Insurance Covers
Workers' compensation insurance is designed to cover the costs related to injuries and illnesses that befall an employee in the workplace. While specific coverages can vary from state to state, the rules regarding what workers' compensation insurance covers tend to be similar. Practically any illness or injury that an employee incurs as a result of his or her job will result in a workers' compensation claim, even if the injury was caused by employee negligence. Long-term injuries are also covered. Most workers' compensation program pay for medical costs, replacement income, rehabilitation and job re-training.

Most states do not require workers' compensation programs to reimburse employees for pain and suffering. Some states allow workers' compensation claims to be dismissed if the employee was under the influence of alcohol or drugs at the time of the injury. Federal law mandates that employees who collection workers' compensation payments cannot sue their employer.

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* The above terms and opinions are to be used for descriptive and reference purposes only. Please review your individual policy for full definitions, exclusions and endorsements. Should you have any questions, please contact your Broker or Agent.