Purchasing Worker's Compensation | Get a Free Quote |
by Karen Murphy, MostChoice.com When it comes to purchasing worker's compensation insurance, your options are limited by the state in which you live and the national rates that affect your premiums. Unless you own a business in Texas (the only state where worker's comp is not required), you are subject to state laws that govern this particular kind of insurance. To begin with, each state sets its own rules regarding how much medical coverage you must provide your employee in the event of a work-related injury. If the injury causes missed work, it dictates the percentage of the employee's salary you must pay and how long you are required to pay it. Some states require coverage for funeral expenses and financial support to dependents in the event of death, as well as liability coverage for damages stemming from an employee claim. The state also decides who gets to select a physician to care for the injury -- the employer, the employee, the state agency or a combination of these. Most states allow either the employer or employee their choice of physician. You may have the option of using an insurance plan that uses managed medical care to treat injured workers. If so, this can reduce your medical costs and may facilitate an earlier return to work. More than half the states now allow HMOs, PPOs and other managed-care providers to handle worker's comp claims. State-Managed Funds? As a business owner, your first concern is whether your state operates a fund from which you are required to purchase worker's comp insurance, or whether it allows private insurance companies to sell the insurance. A little less than half of the states have no state-managed fund. This means you buy your policy from private companies. The other half offer you a choice between buying from a state-managed fund or a private company. Only a handful of states require you to contact them directly as your only source of worker's comp coverage. Even in states that offer competition from private companies, worker's comp packages are fairly standardized. Because requirements are clearly defined by each state, there is little variation among the basic policies of different companies. Premiums Your premiums are based on a rate classification from either a national rating bureau called the National Council on Compensation Insurance (NCCI), or by a state rating bureau. These bureaus calculate risks based on business classifications. In other words, the riskier the business, the higher your base rate will be. Although the state controls the rate, it doesn't actually set your premium. Insurers use many variables to determine your risk level and how much you should pay. Therefore, premiums can vary from provider to provider. More and more states are allowing competitive pricing for worker's comp. In addition, these insurers may discount premiums by loosely defined credits. Credits are often given to companies that maintain a safe workplace or conform to other safety standards. If your state allows this kind of competition, it is definitely worth your while to shop around. You do have several options when it comes to lowering your premiums: making sure you are classified correctly, offering better working conditions, scrutinizing payroll records and maintaining a good claims record. It's a good idea to get to know these options in order to reduce your costs. (Click here for more on Lowering Costs.) Are You Required to Buy It? Most states require you to purchase worker's compensation insurance as soon as you have employees. In these states, you are considered to have employees from the moment your corporation is formed. In other states, small employers with few than four or five employees aren't required to carry any worker's comp insurance. In addition, some states don't require coverage for all employees. Your state agency or agent can provide you with this information. Insurance Pools and Self-Insurance If you live in a state that allows competition, you may be able to self-insure or join a self-insurance pool. The benefit of self-insurance is that you don't have to pay premiums. Instead, your business must pay for all of the associated costs of a worker's comp claim when it occurs. Self-insurance is usually reserved for large employers who meet minimum payroll or employment levels. However, in more than half of the states, smaller companies may join a pool of small employers where the combined assets of the members allow them to self-insure. Not to be confused with self-insurance pools, state insurance pools are maintained for those companies that are unable to buy worker's comp through normal means because they are considered too risky. These pools are quite costly with high premiums and oftentimes poor service. An agent can help determine why your business is in this category and help you to find a way to get out. It may take several years to demonstrate a reduction of claims before you can purchase insurance from somewhere other than the state insurance pool. In the meantime, you may also be able to join a self-insurance pool. Penalties If you fail to purchase worker's compensation insurance, you will be penalized by the state. If an employee is injured, you will be held personally liable. In addition, the Worker's Compensation Division has the authority to close you down until proper coverage is obtained. With all the laws surrounding it, purchasing worker's compensation insurance can seem like a no-win situation. However, knowing your state's laws and working to lower premiums are ways that you can even the playing field to gain flexibility and perhaps lower your costs. |
