Insurance 101: Workers’ Compensation Insurance

U.S. labor laws require all businesses to either pay for their employee’s medical care, or provide insurance to cover such costs for any work-related medical expenses that occur while working due to a work-related accident.  Workers’ compensation is the type of insurance purchased by a business to cover such work-related medical expenses.

Regulated on the state level, but administered through the Department of Labor, businesses can purchase workers’ compensation insurance from a private company or it can purchase such coverage directly from the state.

Although all businesses in the U.S. are required to pay for work-related illness and injury of their employees, some states, known as ‘elective’ states allow employers and employees the decision of providing or not providing such insurance, while ‘compulsory’ states require all employers to provide workers’ compensation coverage for their employees.

Workers’ compensation provides benefits to cover both an employee’s medical expenses as well as providing a percentage of lost income while disabled.  The goal of this type of insurance is to make the employee ‘whole’ again, and to enable him or her to return to work as quickly as possible.

Coverage only applies to job-related illness, injury or disability that occurs while working, but does not provide for such illness, injury or disability claims that occur outside of one’s employment.  For non-work-related injury and disability coverage, it is advisable to purchase and maintain private disability insurance.

Under the Extra-Territorial Provision, an employee is covered under the workers’ compensation laws of the state in which employed, even if the employee is temporarily working in a different state.

Workers’ compensation insurance provides the following benefits:

Disability Income Benefits
Benefits that replace lost income due to an occupational injury and are paid on a weekly basis or as a lump sum (or combined).  Temporary disability is usually paid weekly, while a permanent disability is generally paid as a lump-sum benefit.

Medical Expense Benefits
Benefits that fully cover any medical treatment as a result of the occupational injury.

Death Benefits for an Employee’s Survivor
Benefits paid to the surviving spouse of a deceased employee due to occupational death.  Payments are based on the deceased employee’s average earnings as well as the number of surviving dependents.

Rehabilitation Benefits
As a result of the Federal Vocational Rehabilitation Act, federal aid is provided towards employee rehabilitation in every state to help the employee return to the workforce.