Real Experts- Trusted Advice
Election/Rejection of coverage under state laws.
In most states, executive officers of a corporation are included under a state’s workers compensation act unless they file
for an exemption from coverage. Partners and sole proprietors are generally exempt automatically
from coverage under each states' act, but the may elect to opt-in for coverage.
It is the responsibility of the employer and/or its agent/representative to determine, prior to applying for coverage, the
options available under a specific state’s regulations. Further, it should be noted that
action taken either to elect or reject coverage under a state law does not eliminate
the need for such action in additional states where the employer may have coverage or
workers comp exposures.
If a person elects or rejects owner coverage, certain forms are usually required to be filed with the state and/or the insurance
provider. Some exclusion forms may even need to be approved by the appropriate state
agency before becoming effective. If such an exemption or election is desired by a business
owner, the appropriate forms and documentation should be forwarded to the insurance company
by the agent prior to binding coverage. Otherwise, the payrolls for the owners will be
treated as if no election or rejection was made in accordance with state law, and premium
will be charged.
Agency producers and employers can avoid additional premium charges from their insurance carrier by completing these election
or rejection forms with the application for insurance. Without the forms, insurance companies
will generally charge premium for owners even if the intent was to elect or reject.
No one is currently allowed to exclude him or herself from the provisions of federal compensation acts. The State Fund in
each state provides coverage to those employers that are required by state law to obtain
it. Federal coverage offered through the State Fund must be written in conjunction with
the state act. Therefore, any person subject to federal law is required to obtain state
act coverage in order to obtain federal coverage under the Federal Plan or Fund.
Many states require owners and officers to sign and file specific state inclusion or exclusion forms depending on how the
business is organized.
For example, a lot of states automatically require insurance companies to include corporate
officers on a workers comp policy; however, the state may allow these officers to file
an affidavit allowing them to be excluded from coverage. On the other hand, many states
automatically exclude sole-proprietors and partners from coverage; conversely, the state
may allow these owners to file an affidavit requesting to be included for coverage.
It's not uncommon for business owners to want to take steps to save money on insurance. Many
states require strict documentation and affidavits for owners because of prior lawsuits
and legal issues involving excluded owners and officers. Owners often assume their health
insurance will cover any work comp claims and can't imagine ever filing a claim on their
Health insurance specifically excludes work-related injuries unless there is a rider attached to the policy adding business
coverage. Additionally, health insurance does not cover disability in the same manner
as workers compensation insurance. While a lot of employers in white-collar industries
are not likely to get injured or file a claim, their rates are often so inexpensive that
it makes more sense to include themselves for coverage rather than elect to be excluded.
Owners and officers in higher risk industries often elect to be excluded from coverage in order to save money on their premium.
As an agency, we certainly understand the need and desire to save money; however, we've
also seen excluded owners who have been injured on the job with no medical coverage or
disability income. The results can be much worse than the cost of coverage for business
owners. Owners need to weigh the pros and cons.
Each state also set rules for owner and officer payroll minimums and maximums for workers'
comp rating purposes. Sole-proprietors and partnership often have a set payroll amount
that must be used to calculate premium for the owners who do not exclude themselves from
coverage. Officers and LLC members generally have a minimum payroll amount that can be
used as well as a maximum payroll that can be used for premium calculations.
Minimum and maximum payrolls for owners does not have an affect on the medical portion of coverage; however, any short-term
or long-term disability payments are determined by the owners average payroll prior to
the disability. Therefore, higher payroll provide more wage replacement if a temporary
or permanent disability occurs.
Most insurance agents are generalists; so they're not experts on workers' compensation coverage and often don't know when
an owner or officer can choose to exclude themselves from a policy. At Workers Compensation
Shop.com, we think employers should know their rights and make their own determination
as to whether or not the want to be included or excluded (Election of coverage or rejection
of coverage) from their workers compensation policy.
Let one of our national workers compensation insurance Specialists help you determine if your state and legal business status
allows for owner and officer inclusion and exclusion. We'll make sure you know your rights
and properly file any required state forms with the insurance company and your state's
Department of Insurance.