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What Is Workers Compensation Insurance? (And Why Do You Need It?)

You may have seen attorney commercials on TV talking about workers compensation claims. Maybe you know someone who was injured on the job and needed to be on desk duty until their foot healed.

Or maybe, most importantly, you’re starting a business and need to purchase workers comp insurance for yourself.

But what is workers compensation insurance, exactly? And do you really need it?

What is Worker’s Compensation Insurance?

There are many myths surrounding workers comp insurance, but it really is quite straightforward.

Workers comp insurance is an amazing product that provides medical benefits to injured employees for the duration of their injury or illness (even if it’s life-long) and removes the costly, stressful process of pursuing an employer for (all too often, disappointing) compensation.

young man with arm bandage giving thumbs up

Likewise, from an employer’s perspective, it largely removes the threat of employee lawsuits following every workplace injury or illness (except in cases of extreme employer negligence and several other exceptions) while providing comprehensive care of the injured and/or sick.

As long as you pay your premiums (and maintain a safe work environment to the best of your abilities), you will not have to pay out-of-pocket if one of your workers gets injured, falls ill, or dies in the course of performing their job.

 

Why Do I Need Workers Comp Insurance?

Without worker’s compensation insurance, your employee would be allowed to sue you for the medical bills, lost wages, and permanent disability that they incurred as a result of their injury/illness. If they pass away, their family could sue you, too.

Everything from keyboard-induced carpal tunnel syndrome to catastrophic accidents are covered. But it only takes one serious injury to bankrupt the business you worked so hard to build.

Put simply, everyone who owns a business with even a single part-time employee needs worker’s comp. Otherwise, you are putting your company at risk.

Remember, it only takes an accusation to cause a major and costly issue. Even if a business is ultimately exonerated, it could take tens of thousands of dollars to defend and prove their side. Worker’s comp also provides protection—including legal representation—for Employer Negligence claims.

 

What is Covered Under Workers Comp Insurance?

There are four main types of benefits that are assured through worker’s comp insurance: medical payments, lost wages, death benefits, and employer negligence. Together, these four subtypes create a comprehensive level of coverage for any business.

Medical Payments

First and foremost on your injured or ill employee’s mind is their medical care.

Workers comp insurance steps in to cover any bills they accrue while getting treatment for their condition, including, but not limited to:

  • hospital visits;
  • doctor’s visits;
  • surgeries;
  • X-rays, MRIs, and other tests;
  • medications;
  • wheelchairs, crutches, braces, and other assistive devices; and
  • physical therapy or rehab.

aerial shot of doctor taking patient's blood pressure

Unlike health insurance, worker’s comp insurance would not require your employee to pay any deductibles or co-pays. Their employer’s worker’s compensation policy would cover 100% of the bills.

The only caveat is that the employee may not be allowed to pick any doctor; the insurance company has the right to choose for them.

Lost Wage Benefits

Another issue that concerns injured/ill employees is the loss of a paycheck during the time they are unable to work.

Under Florida law, employees are allowed to collect lost wage benefits if they were unable to return to work for at least seven days due to a workplace injury or illness.

The amount they receive is based on the employee’s regular paycheck and are sent every two weeks. However, your employee should not expect to receive their full paycheck. Lost wage benefits are typically a certain percentage of their regular wage and there is a cap on how much they can collect per week.

Death/Funeral Benefits

It’s horrible to consider, but occasionally, workplace injuries or illnesses prove catastrophic.

If a loved one dies due to an injury or illness they contracted at work, their eligible family members are entitled to receive death benefits (a percentage of the employee’s living wage) and funeral expenses (up to a certain amount).

Employer Negligence

Although one of the main benefits of workers comp insurance is protection from employee lawsuits, this protection doesn’t apply in cases of extreme employer negligence or intentional harm.

Under the law, employees have the right to work in a safe environment. If an employer fails to exercise reasonable care and caution (or they acted with deliberate, malicious intent), they can be found negligent in the event of an illness, injury, or death and the employee can file a lawsuit against them. The employee’s legal costs can even be charged back to the employer by the worker’s comp insurance company.

While there are no limits to worker’s compensation benefits (affected employees can receive benefits for life, if need be), there are limits to coverage for employer negligence. (The Florida Statutory Minimum limits are $100k per accident, $500k per policy year, $100k per employee.)

Maintaining a safe work environment isn’t just good for your employees, it’s good for your bottom line as well.

 

Am I Required to Get Worker’s Compensation Coverage?  

Yes and no.

In Florida, business owners in the construction industry must have workers comp insurance if they have even one employee. For other businesses (excluding agricultural businesses), the minimum amount is four employees, including part-timers.

hard hat that reads "under construction"

Worker’s Compensation is also available for “Owner Only” type businesses. Unfortunately, the market for such coverage is somewhat narrow at the moment.

Regardless of the legal requirements, however, worker’s comp insurance is never a bad idea.

 

What Does Worker’s Compensation Insurance Cost?

Worker’s compensation premiums are based on your business’ payroll. The higher the payroll, the more expensive the policy. (There are controls that put caps on owner/officer payroll.)

Your payroll may be calculated monthly or annually, but the most important thing to remember is that you must be completely honest. The fines for reporting a fraudulent payroll amount are not worth the money you hope to save.

Even if you aren’t required by law to purchase worker’s compensation insurance, it’s always best to provide your employees with the coverage. The cost of your premiums is well-worth the knowledge that you won’t have to pay out-of-pocket for any exorbitant medical bills.

 

Conclusion

Every business owner who hates to lose money (that is, every business owner) needs worker’s compensation insurance in order to have comprehensive protection against risks that threaten their livelihood.

But carrying workers comp insurance doesn’t just protect the employer, it also reassures employees that they will be taken care of in the event of an accident.

Your employees support your business every day by bringing their talents to your organization. Show them the same level of appreciation and respect by providing this vital form of coverage.

About the Author

Jason Levine

Jason received a Masters of Science & Management in Risk Management & Insurance from Florida State University. He has been with Harry Levine Insurance for 9 years and handles the leadership of daily operations. He was the 2013-2014 Florida Association of Insurance Agents Young Agent Council's Agent of the Year. Currently serves on FAIA Board of Directors.

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