What Is Workers Compensation Insurance

Workers compensation laws are designed to ensure that workers who are injured on the job receive the monetary compensation they deserve.

Without these laws, employees might not get necessary medical treatment. At the same time, the employers would be potentially subject to lawsuits being filed by injured employees, which could potentially put the companies out of business.

The benefit of workers compensation insurance is that it removes the burdensome and costly process of litigation and provides guaranteed benefits for workers.

State regulations define the compensation amounts for workplace injuries. As long as the employer has workers compensation insurance, which is typically recovered by law, the workers compensation insurance carrier (or state fund in some cases) will pay for the employee's reasonable medical fees up to the amount defined by state regulations.

In exchange for their workers compensation benefits, injured workers give up most rights to sue employers for injury. Employers give up the right to reduce compensation if the employee is at fault. For this reason, workers compensation insurance is termed as being "no fault" insurance.

Workers compensation is not optional. Depending on the state, if a business employs a certain number of employees, they must buy workers compensation insurance.

However, the type of business will impact the amount of the workers compensation insurance premium. Everything else being equal, a white-collar consulting firm will have lower workers comp costs than a manufacturing company. The higher the risk of accident, the higher the workers comp insurance costs.

With workers compensation insurance, there is no co-pay or deductible. The workers comp insurance carrier covers all of the costs. Of course, these costs are passed along to the employers who pay their workers comp insurance premiums.

When workers comp insurance costs get too high, employers will lower salaries, hire fewer employees, or raise prices on their customer offerings.

In this way, workers compensation insurance costs impact all of us, regardless of whether we are injured on the job or not.