Workers Compensation Basics

Workers compensation rules varies by state, but the basic system and structure follows similar laws and statutes.

Is workers compensation required?

Workers Compensation and Employers Liability Insurance.

A workers' comp policy creates a give and take relationship between employee and employer. Employees generally can't file lawsuits against their employers under state workers compensation insurance laws and employers can't raise certain legal defenses against employees to avoid paying claims. The system is known as a "no-fault" system and helps ensure coverage for medical and lost wages and increase efficiencies in the claim process.
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Understanding Workers' Compensation Coverage

The Basics of Workers Comp Insurance

Today's Workers Compensation and Employers Liability Insurance Policy was developed by the National Council on Compensation Insurance (NCCI) and covers the insured's statutory liability under the various state workers compensation laws or acts.

Workers' compensation, also known as workers comp is insurance coverage required by state laws. It is designed to provide compensation for workers who are injured on the job in the course of their employment. Work Comp insurance is always paid for by the employer.

Workers Compensation is based on a system by which no-fault statutory benefits prescribed in state law are provided by an employer to an employee (or the employee's family) due to a job-related injury (including death) resulting from an accident or occupational disease

The true benefit for carrying workers compensation insurance is that the laws strictly prohibit employees from suing their employers for any claims or any negligence if a policy is in force during the claim.

While plans do vary between states, work comp insurance generally covers the following:

  1. Medical treatment for injured employees (i.e. broken arm)
  2. Occupational hazards such as disease exposure (i.e. emphysema)
  3. Employers Liability (damages to a 3rd party where employer is liable for an injury)
  4. Temporary disability (up to 2/3 of average weekly wage)
  5. Permanent impairment (i.e. loss of finger)
  6. Total disability (usually paid in a lump sum)
  7. Death benefit (paid to survivor dependents
Workers' Compensation Defined

Workers' compensation is a form of insurance, paid by employers, providing wage replacement and medical benefits to employees who are injured during the course of working for the insured. The employee does not have the right to sue the employer for any tort negligence when an employer purchases coverage. The system is known as the compensation bargain because it protects and limits both parties in terms of legal recourse from injuries.

Does Every Business Need Coverage?

Business owners in some states are not required to buy workers compensation insurance. State rules are typically based on the type of business entity you have (sole-proprietorship, partnership, LLC, corporation) and your total number of part-time and full-time employees. In most states, one or more employee will trigger coverage requirements. Visit our state pages for specific regulations in your state.

In several other states, owners are required to carry workers' compensation coverage even if they don't have employees. Many owners end up spending more money for coverage when they purchase a standard policy. Individual owners with no employees may benefit from buying a workers compensation ghost policy instead of a traditional policy.

Quick Work Comp Facts
  • Employees don’t have to be a legal resident of the United States to receive most workers’ comp benefits.
  • All medical care must be paid for by your employer (or insurance carrier) if you get hurt on the job— whether or not you miss time from work.
  • Employees can’t sue their employer for a job-related injury (in most cases).
  • Employees receive benefits no matter who was at fault for your job injury.
  • It’s illegal for any employer to punish or fire an employee for having a job injury or for requesting workers’ compensation benefits when they believe the injury was caused by the job.
  • An independent contractor may be covered by workers’ compensation as an employee even if they are labeled an independent contractor.
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Employers Liability Coverage

Employers liability coverage is provided by Part 2 of the basic workers compensation policy. It pays on behalf of the insured (employer) all sums that the insured shall become legally obligated to pay as damages because of bodily injury by accident or disease sustained by any employee of the insured arising out of and in the course of his employment by the insured.


Employers liability insurance covers employers who may be liable, if, through their negligence, employees have been injured. Workers Compensation pays the worker whether the employer has been negligent or not. Any injury must be injured or suffer an occupational disease in the course of employment.


Each state has their own specific rules and laws regarding workers compensation coverage and employers liability. Employers liability coverage is part of every insurance policy except the four remaining states where the state's workers' compensation system is managed under a monopolistic system. Employers liability can typically be added to an employer's general liability policy in monopolistic states.

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Visit NCCI for more resources and information about workers' compensation class codes. Visit United States Department of Labor for more information about government agencies managing workers compensation insurance rates.

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