Workers' compensation insurance has a slew of coverages involved and knowing what and how the policy works is part of being a business owner. An employee's lost wages are a major concern and also figuring out who's responsible.
An independent insurance agent is a key advisor for any business owner when it comes to workers' compensation insurance and how coverage applies. Having the right person in your corner with the best options is a pretty good place to start.
What Is Workers' Compensation Insurance?
First things first. You need to know what workers' compensation insurance is before you can know the laws that govern it. Workers' compensation insurance is an insurance policy taken out by an employer or independent contractor that will help pay for medical expenses of an injury or illness that occurred while working or as a result of an employee's job.
This policy will also pay for partial wages, usually up to two-thirds, for any employee, included owners, or independent contractors while they're recovering. An independent insurance agent is the perfect resource to have when it comes to knowing the ins and outs of workers' compensation coverage.
What Is Lost Income Insurance?
Lost income, or loss of income as it pertains to a workers' compensation claim, is the income that an employee would have received if they were still able to perform their regular job duties. If an employee gets injured or ill on the job and has to take a leave of absence as a result, then an employer's workers' compensation policy will pay for those lost wages in part of their regular pay during an active claim.
What Does Lost Income Insurance Cover?
So glad you asked. You just found out what loss of income is as it relates to a workers' compensation insurance claim, but what does it actually cover? It covers typically two-thirds of an employee's regular wage. There is always a maximum that can be paid out and it does not normally go over the regular wage amount.
Some different scenarios that could happen:
Scenario 1: Lost income should be paid out directly from the workers' compensation insurance company to the claimant. You, as the employer, will need to verify lost wages and the injured employee will need to accept coverage through the workers' compensation policy waiving their rights to sue you in order to receive coverage. This is the ideal scenario.
Scenario 2: The employee can choose to decline workers' compensation coverage and may go after you as the employer for lost wages, mental and physical anguish, and a laundry list of other items that may or may not stick in court. This is the risk you take as a business owner and is an unfortunate side effect of not having enough coverage to offer employees.
What Does Lost Income Insurance Not Covered?
By now you should have a pretty good understanding of what lost income coverage will in fact cover. What you need to know is what it's not going to cover. A good place to start is with a workers' compensation policy as a whole.
What's not covered under a workers' compensation policy:
- Full wages (This is lost income, and it will only cover partial usually up to two-thirds of regular pay.)
- Non-work-related injury or illness (This is crossing the line into insurance fraud which is discussed next.)
- Coverage more than what is offered on the policy (Once your policy limits are exhausted for any one claim, that's it. There is no more coverage and it has officially become a personal problem.)
Workers' Compensation Insurance Fraud Laws
Insurance fraud is a big deal. Filing a claim that isn't real or has been manipulated all in an effort to get a large payout from the insurance company should be taken very seriously mainly because it lacks integrity, but also because the consequences could be dire to you, your employee, and your business.
Some insurance fraud consequences:
- Penalties and fines ranging from hundreds to thousands of dollars
- Jail time from one year to thirty years
The result of filing a faulty workers' compensation claim and being caught isn't worth the risk. An employee can file a false claim wanting a payout for an injury or exaggerated illness. An employer can misclassify an employee to avoid them filing a claim in the first place, and a healthcare provider can extend the injury or illness to continue getting payment from an insurance company. As the employer, you set the stage. And by setting up proper safety practices and a clean claims reporting process, you can help curb the chances of false claims being filed.
Cost of Workers' Compensation and Lost Income Coverage
Workers' compensation policy costs vary. It's as vast as the number of industries in the world and the only true way to know is to have your agent run the numbers on your business and its specifics. While it's nearly impossible to know what your individual workers' compensation premium will be, here are some determining factors you can look out for.
Workers' compensation price-determining factors:
- Industry: This plays a big part in the cost of your workers' compensation premium. The riskier your business, the more your premiums will be.
- Number of employees: This determines how much your rates will increase. More people equal more money.
- Gross annual payroll per employee type: Each employee is given a classification code that classifies their job duties and then premiums are charged according to how risky or not risky their tasks are. The amount of money you pay them will determine the amount of premium per classification code. The more payroll, the more premium you pay.
- Experience modification rating: If your business has had workers' compensation insurance for a total of three years or more, and you are paying over $5,000 in annual premium, then you'll be assigned an experience modification rating, aka "mod." This mod will adjust throughout the years depending on the number, length, and frequency of claims turned in. The better the mod, the better rate you will receive. It's kind of like a credit score for your workers' compensation policy.
The cost of lost income within a workers' compensation policy is included in the premiums and is not a separate or individual coverage. However, the amount of coverage can be increased or decreased per your request and your specific business coverage needs.
What Is the Benefit of Having Enough Lost Income Coverage?
The benefits of good coverage far outweigh the costs involved. Having a knowledgeable independent insurance agent that can properly advise on how much coverage you should obtain will determine how much coverage your injured employees can get.
The less coverage you get, the greater risk you are for having a disgruntled employee decline coverage altogether and file a lawsuit against you personally. To avoid money coming out of your pocket, it's best to do things right the first time around.
Is Lost Income Coverage State-Specific?
Lost income coverage can be state-dependent, meaning it depends on what the state allows in its workers' compensation laws and guidelines. Each state has its own rules when it comes to workers' compensation insurance because each state except for Texas has mandated workers' compensation coverage in some form or another. There are no forms that are associated with lost income coverage through the insurance provider because it's an included coverage within the workers' compensation policy.
Knowing what your state specifics are concerning coverage types can be discussed with your local independent insurance agent because they have the know-how when it comes to workers' compensation regulations.
Benefits of an Independent Insurance Agent
Independent insurance agents have access to multiple insurance companies, ultimately finding you the best coverage, accessibility, and competitive pricing while working for you. And as your company grows and your needs change, they'll be there to help you adjust your coverage, up or down, to make sure you're properly protected without overpaying. Find an independent insurance agent in your community today.