Workers’ Compensation Insurance: Meaning & Most Frequently Asked Questions
- Elijah
- May 29
- 6 min read
Whether you are an employee or an employer, understanding how the workers' compensation system works will benefit you tremendously. It is based on a trade-off between employers and their employees, whereby employees are entitled to receive immediate, quality medical care for on-the-job injuries or illnesses, regardless of who is at fault, and employers are responsible for providing this care. In return, employees will not be able to sue employers over those injuries.
Under federal law, all employers must provide workers’ compensation insurance even if they have just one employee. If that employee gets injured in the line of work, you will have to pay them workers’ compensation benefits. For example, if you run a small logistics company with two truck drivers, if one of those drivers gets involved in an accident and gets injured, you, as an employer, will be responsible for their medical care until they’re able to resume work, whether the accident was due to their fault or not.
If you’re wondering how workers’ compensation insurance works or looking to learn more about workers’ compensation insurance and benefits for your company or as an employee, here are the most frequently answered questions on the subject that will help you navigate negotiations, if necessary.
What is Workers’ Compensation Insurance?
Workers' compensation or workers' comp is a type of insurance provided by employers to employees, offering wage replacement and medical benefits to employees injured in the course of doing their employment duties in exchange for the employee's right to sue the employer even if the accident was due the employer’s negligence.
Workers’ compensation insurance covers the injured or sick employees’ medical expenses, lost wages, and rehabilitation costs as long as the injury was sustained “on and within the scope of their” job. If the employee died from the accident, worker’s compensation pays death benefits to the deceased employee's family.
It is a mandatory requirement under the law for employees to have workers’ compensation insurance. Every state also has its own rules concerning workers’ compensation insurance. For example, in California, all employers must provide workers’ compensation benefits to their employees under California Labor Code Section 3700.
What Does Workers’ Compensation Cover?
Now that we understand workers’ compensation insurance, another important question is the coverage of workers’ compensation insurance. Typically, workers’ compensation insurance helps cover medical expenses, lost wages, temporary disability benefits, permanent disability benefits, return-to-work supplements, ongoing care costs, and even funeral expenses if the employee dies due to a work-related accident or illness.
What Is Not Covered by Workers’ Comp Insurance?
While workers’ compensation provides broad protection for workplace injuries and illnesses, there are certain situations where claims may be denied. Coverage exclusions can vary by state, but many states commonly exclude the following:
Injuries resulting from an employee-initiated fight: If an employee starts a physical altercation, any resulting injuries may not be covered.
Injuries sustained while under the influence of drugs or alcohol: If an employee is intoxicated at the time of injury and it contributed to the incident, the claim is typically denied.
Self-inflicted injuriesInjuries that are intentional or self-inflicted are not covered under workers’ comp.
Mental or emotional stress without accompanying physical injury: Claims based solely on emotional distress or psychological trauma — without a related physical injury — are often not compensable unless tied to specific traumatic work events (depending on state laws).
How Do I Buy Workers’ Compensation Insurance?
You can purchase workers’ compensation insurance from a private insurer. Most of them will furnish you with quotes from top U.S. carriers so that you can compare prices and go for an offering that suits your needs and budget the most. Select your industry and profession in the dropdown below, fill out our easy online application, and we’ll send you quotes that fit your business. Some states, more specifically North Dakota, Ohio, Washington, and Wyoming, require companies to purchase workers' compensation insurance policies from the state fund.
Some large employers in states like Ohio and California also have the option to self-insure for workers’ compensation. These companies can also engage a commercial broker-agent to assist it with purchasing workers’ compensation insurance from a licensed insurance provider and other related services.
How Much Does Workers’ Compensation Insurance Cost?
Because workers’ compensation insurance rules vary across states, there is no fixed price for workers’ comp coverage. By and large, the more employees and risks that your company has, the higher the premium your company will pay for workers' compensation coverage. The formula for calculating your workers’ insurance rate is pretty basic and straightforward.
The higher the risks your employees face at work, the more you are likely to pay to cover for workplace injuries. In general, the cost of workers’ comp depends on the following:
The state where your employees work
Your industry
The type of work done by your employees
Your company’s workers’ compensation claims history
Your business’ annual total payroll
For comprehensive coverage, you may consider teaming up with a PEO to reduce the cost of workers’ comp coverage.
How Do I File a Workers’ Compensation Claim?
It is best to file a workers’ compensation claim with your insurance carrier immediately after the incident. But before you report any workplace accident or file a claim with the insurance company, you should gather some important information. Either as an employer or employee, some general information that you can include when filing a claim include:
Information about the company
Insurance policy number of the company
Information on the injured employee, including date of birth, address, phone number, Social Security number, etc.
Details of the accident and how it happened
Ensure the affected employee gets proper medical treatment after filing the report. If necessary, call the ambulance or take them to the emergency room for immediate care until help arrives at the scene. Also, if they need time off work to fully recover, it is important that they be granted the time even if they do not ask for it. Generally, you should report any workplace injury or illness if:
The injured victim is your employee
The employee became sick or got injured in the course of doing their jobs
What Can I Do if an Employee's Workers' Compensation Claim is False?
If you believe that an employee’s workers' compensation claim may be fraudulent or inaccurate, the appropriate first step is to report your concerns to your workers' compensation claims administrator or insurance carrier. Be sure to provide detailed, factual information and any supporting evidence you may have.
If there are witnesses who can speak to the incident or the employee’s condition, their statements may also be helpful. The claims administrator will conduct a thorough investigation and determine the validity of the claim based on the available evidence.
Who Pays For Workers’ Insurance Coverage?
In almost all U.S. states, employers are legally required to provide and pay for workers’ compensation insurance for their employees. The notable exception is Texas, where coverage is generally optional for private employers, although many still opt in to avoid potential liability. New Jersey, while having unique rules for certain employee classes (like sole proprietors), still generally requires employers to carry coverage.
Employers cannot require employees to pay for this insurance. Even in states where participation is elective, like Texas, businesses that choose not to provide coverage may face lawsuits or increased liability if an employee is injured on the job.
Have More Questions About How Workers’ Insurance Work?
Try to familiarize yourself with workers' comp coverage rules where your employees work. If you have more questions about workers’ compensation or employer’s liability insurance, we are happy to help answer them. At The Mission, we look forward to using our profound insights and expert guidance to help you improve your productivity and cut down on liabilities. We are experts at assisting businesses to implement the best growth strategies successfully.
Also, as leading partners in the PEO, HR, payroll, and benefits outsourcing marketplace, we provide result-oriented services for small and medium-sized organizations and government contractors, serving as a trusted partner in integrated human resource compliance, risk management, employee benefits, employment practices liability insurance (EPLI), and payroll processing. Contact us today for further assistance.
