The basics of workers compensation insurance

The thing most small businesses most commonly overlook about workers comp insurance is this: they need it. Unless you're in Texas , that is. The other 49 require small employers to cover their employees' lost wages and/or medical expenses in case they're hurt on the job.

Different states have different coverage requirements and mandate what percentage of an employee's salary must be paid in the case of work related injury. Also, some states allow small businesses of a specified size to self-insure their workers comp. This means that if a small business is small enough it may legally opt to pay for claims directly out of pocket. So if you've only got a handful of employees it might not be necessary to actually purchase a policy from an insurance company.

The confusion doesn't stop there. Some states don't require coverage for certain types of employees. Often the owner of the business doesn't need coverage as well as, unpaid volunteers and domestic employees.

Variation in Small Business Workers Comp Policies

Although there is a lot of variation from state to state, workers comp packages are fairly standardized from state to state. Nearly all basic packages cover: medical treatment, lost-wages and rehabilitation. Liability coverage is also fairly common and protects the policy holder from those pesky ambulance chasers.

What Options are Available to Small Businesses in Search of a Workers Comp Policy?

Surprise again, things are going to get a bit more complicated. Each state has a regulatory body that monitors workers compensation insurance. Most are regulated by the National Council on Compensation Insurance. Others have state-specific organizations that serve the same purpose. N. Dakota , Ohio , Washington , W. Virginia and Wyoming deliver workers compensation insurance through a monopolistic state fund.

If you find yourself in one of the five states with a single fund you're finished shopping for a carrier. You will however need to purchase your employer liability insurance through a separate commercial insurer.

If you find yourself in one of the other 45, you usually have a choice among the nation's largest insurers. Liberty Mutual, Travelers, Kemper and The Hartford are the most common.

If the big name insurers don't get your fancy then you may still have two more options: self insurance, as mentioned earlier, and state insurance pools. State pools usually attract the companies that are too risky for big name insurers. This is typically a last resort option for companies that can't get coverage anywhere else.

Nearly all of the states, 47, have the option of self-insuring. This option however requires the employer to assume all risk for work related injuries.