What is Workers Compensation Insurance?

Workers compensation insurance offers medical and wage benefits to those who get injured or get sick at work. Each state requires coverage and salary and medical benefits vary by state. Compensation for workers is considered a social insurance because it is based on a social contract between management and labor, in which in exchange for purchasing workers compensation insurance, business owners are protected from civil lawsuits by part of its employees who suffer damage at work. Each part benefits, but there are limitations. Workers compensation insurance is purchased by companies and has the backing of insurance companies; in some states, they are insured by public state funds.

Definition of workers compensation insurance

Workers’ compensation covers medical expenses, lost wages and rehabilitation costs for employees who are injured or become ill “in the course and exercise” of their work. It also pays death benefits to the families of those employees who lose their lives at work.

How is the cost of workers compensation insurance determined?

Similar businesses in each state that exhibit comparable costs and patterns of workplace damage are grouped into “classes.” Rates are determined for each class based on the previous five years of loss costs corresponding to the businesses within that class. This provides an equitable system in which fees are charged proportionally to the claims history of the business class. Then, the economic factors of each state are added to these data in order to determine the rate for each class in a given state.

A system called “experience qualification” allows to modify the rates of the classes based on the loss history of a particular business. This system gives business owners a significant level of control over the cost of their workers’ compensation insurance premium: safe businesses are rewarded with lower premiums and uninsured people are fined with higher premiums.

Who should have workers compensation insurance?

All states, with a few exceptions, require that businesses with non-owner employees purchase workers’ compensation insurance coverage for those employees.

Companies that do not offer workers’ compensation insurance coverage can face serious and costly repercussions, including the payment of out-of-pocket claims, fines and possible incarceration, as well as the possibility of losing the right to carry out commercial activities in the workplace.