If your business has employees, you probably need workers’ compensation insurance to protect them financially if they suffer an on-the-job injury, illness, or fatality. There are very few exceptions to the coverage requirement, and they vary by state. So, if you employ people, you should obtain workers’ compensation insurance unless you learn that you don’t need it.
Most states require businesses to have a workers’ compensation policy even if they only have one employee or subcontractor. If you’re required to have coverage and fail to purchase it, your state can fine or penalize you—even if you’ve never had reason to file a workers’ comp claim. Plus, if you don’t have coverage and an employee is injured or killed on the job, you can be stuck with large out-of-pocket expenses.
Key Considerations When Shopping for Workers’ Comp Coverage
While you may have no choice in maintaining workers’ compensation coverage, you do have options for where you get your workers’ compensation insurance in most states. (Ohio, North Dakota, Washington, and Wyoming require employers to purchase coverage from a government entity rather than insurance companies.) Consequently, it’s important to do your research to find the best policy for your business and an insurance company you can rely on for support.
Keep these six tips in mind as you shop for workers’ comp insurance:
- Research the workers’ comp insurance requirements in your state. Each state has its own coverage rules, so you must get the details from the appropriate state department or agency in the location where you do business. If you perform work in multiple states, you must understand the rules in each one. Also, while workers’ comp rules don’t change often, keep in mind that they can and that you’re required to stay informed about the rules. Your workers’ comp provider can help you keep up with any rule changes.
- Understand how insurers price workers’ comp insurance. Insurance companies base the cost of a workers’ comp policy on your company’s total payroll plus other factors like your industry and the types of work your employees do. You provide current payroll information when you apply for workers’ comp coverage. Then you provide updated information in a legally mandated process called a workers’ comp audit at the end of a policy period. This process ensures that you pay for coverage based on actual employee payroll during the policy period. You may receive a bill or a refund based on the audit result.
- Have your current workers’ comp policy available. If you already have workers’ comp insurance and are looking for a new carrier, the companies you contact may ask for information from your existing policy. For example, if you have had coverage for several years, they will want to know your experience modification factor (or Ex Mod). It takes into account your claims history as compared to similar businesses. They will also want to know the classification codes for your employees, which summarize the type of work they perform. Having your policy handy will streamline these conversations with insurance providers.
- Ask about policy discounts. Most of what insurers use to calculate your workers’ comp coverage cost is outside your control—your payroll, industry, etc. But you may be able to lower your rate by having a formal employee training program, a workplace safety program, or other initiatives that reduce the risk of injuries and claims at your company.
- Ask about payment options. Insurers typically will allow you to pay for coverage on a payment plan. However, by paying more of your insurance cost at once, you may reduce the billing fees that all companies add to cover the cost of processing payments.
- Work with a company that understands this type of coverage. Not all companies that offer workers’ comp policies have significant experience supporting workers’ comp customers. This insurance is required by law in most cases and critically important to your employees, so you should work with a provider that has ample experience in this area.
3 Vital Actions After Purchasing Workers’ Comp Insurance
After you purchase workers’ comp insurance, there are three actions you should take to ensure you get the most out of your policy:
- Learn about the workers’ comp claims process. It is stressful when a worker is injured, becomes ill, or dies due to a workplace incident. Having a basic understanding of the workers’ comp claims process and what you and your employee need to do after an incident can take some of the stress out of managing the situation.
- Review your policy as needed. As your company evolves, your workers’ comp coverage must change with it. So, if your business adds or deletes service offerings, increases headcount, etc., you need to determine if your coverage must change. Your insurance provider can help you make that determination.
- Check your workers’ comp audit results. This critical review determines whether you owe or are owed money at the end of your policy period. Consequently, you should review it carefully. If you discover any errors, you should promptly point them out to your insurance company so that the problems can be corrected.
Investing in Financial Protection and Peace of Mind
It takes a little time and effort to find the provider with the best workers’ compensation insurance for your business. But the payoff is having solid coverage for your employees so that if they experience a work-related health issue, they will have financial protection for the related costs.
Purchasing a workers’ comp policy also provides peace of mind to business owners, employees, and the families that rely on those workers. With coverage in place, you and your employees can also focus on your work without worrying about workplace incidents.