Almost every state in the U.S. requires businesses to provide workers’ compensation insurance, more commonly known as workers’ comp. Like other forms of insurance, workers’ comp helps protect policyholders from financial turmoil should a worst-case scenarios occur. The benefits of workers compensation cover workplace injuries and related illnesses. When an employee accident happens, the employer’s insurance policy pays for medical bills and disability payments should the employee need time off work to recover.
If you’re a new business owner looking for workers’ comp, or if you’re dissatisfied with your current policy and are looking to switch, you should start your research by analyzing the factors that determine coverage costs.
- Your Business’ Location
Every state has different rules when it comes to workers’ compensation insurance. Except for Texas, the only state where workers’ comp isn’t required, each state has either a competitive or monopolistic state insurance fund. The type of fund your state offers will determine your coverage options.
If you run a business in Ohio, Washington, Wyoming, or North Dakota, you have to buy into your state’s monopolistic workers’ comp fund (although Washington does allow some businesses to self-insure). Business owners operating in the remaining U.S. states have the option to use their state’s competitive fund or purchase a policy from a private insrer.
- How Many People You Employ
In most states, you need workers’ comp insurance regardless of how many people work at your company. Some states do allow businesses with only a few employees to opt-out of workers’ comp; others require coverage even if you have just one employee. However, the size of your workforce will affect your policy premiums. The more employees you hire, the higher your business’ payroll. When determining premiums, insurance providers factor in your total payroll amount.
- Industry Classification
Your company’s industry classification code plays a significant role in determining your workers’ comp premium. For insurance purposes, industries are classified based on the associated risks of the work performed by employees. For example, businesses that deal with construction, manufacturing, oil, and dangerous chemicals are considered high risk. These companies tend to have the highest premiums.
- Experience Modification
Experience modification rewards businesses have fewer workers’ comp claims compared to others within the same business classification. Many private insurance providers use a percentage modifier to lower rates for companies with exemplary low losses; the small the modifier, the smaller percentage of your premium you have to pay. The experience modification factor gives business owners even more incentive to ensure workplace safety and provide comprehensive training to their employees.
- Your Insurance Provider and Policy Features
All factors considered, insurance companies set the price of their policies and the premiums businesses have to pay. If your business operates in a state with a competitive workers’ comp insurance market, then it’s up to you to shop around and research your options diligently. To find the policy that’s right for your business, consider discussing the matter with employees or union representatives. At the end of the day, you want to ensure that you offer your employees the best possible coverage at the best possible price.
Rest Assured with Workers’ Comp Insurance
While workers’ comp insurance can be complicated and costly, it protects you and your employees should a major incident at the work site cause injury or illness. Just like with car insurance or home insurance, you hope never to have to use workers’ comp. However, you can rest assured that if the worse comes to worst, an accident won’t spell your company’s financial ruin.
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