What Is Indemnity

Work Comp Q&A: What Is Indemnity in Workers' Comp?

If you’re pursuing a workers’ comp claim, you may have heard about indemnity benefits. The short answer is that if you’re unable to work, indemnity benefits, through worker's comp benefits, will compensate you for lost wages that you would otherwise be capable of earning. 

Of course, this is just a simple definition. Curious to learn more? We’ll explore a number of common questions in this Q&A about indemnity benefits in relation to workers' compensation insurance:

Table of Contents

What are indemnity benefits for workers' comp?
How soon can I receive indemnity benefits?
How do I calculate my indemnity payments?
If workers' compensation does not cover indemnity benefits for independent contractors, what will?

As with any serious financial decision-making, it's a wise decision to have an independent insurance agent to help you understand your rights, how your state handles indemnity benefits, and clarify this complex subject. When reading this article, be sure to jot down any questions or concerns that you may have to discuss with an independent insurance agent today. Doing so will give you peace of mind, less stress, and a better outcome for you and your family. 

What are indemnity benefits for workers' comp?

Indemnity benefits are the lost wages that you would expect to be paid while recovering from a work-related injury/illness. These lost wages include money that an injured individual isn’t making from their job and would otherwise be making had they not been injured at work, due to work restrictions.

The purpose of indemnity benefits is to compensate workers while they recuperate or live their lives with a debilitating injury that limits their earning potential. Each state has its own guidelines on the amount it pays workers for indemnity benefits. Virginia allows workers to collect indemnity benefits for up to 500 weeks, whereas other states have monetary limits to reach until benefits are reduced or canceled.

How soon can I receive indemnity benefits?

Generally speaking, the time frame from submitting a claim, having it approved, and receiving indemnity benefits is within two weeks. 

To learn more about how your state handles indemnity benefits, contact an independent insurance agent today. They can inform you of your state’s guidelines, outcomes of situations similar to your own, and other concerns that can help you understand your rights. 

How do I calculate my indemnity payments?

Depending on the state where the individual was injured, there is a general formula that can give a close estimation of indemnity payments:

  • First, multiply the average weekly wage by the percentage of disablement (see below). 
  • Next, compare this amount to the state’s minimum and maximum from the schedule of benefits (see below).

Some states compare the average weekly wage of the individual with the statewide average weekly wage. If the worker’s wages are outside the statewide average weekly wage, the state may apply another factor in the calculation.

Schedule of Benefits

Workers’ comp indemnity payments are governed by each state’s workers’ compensation board, which outlines a schedule of benefits. This schedule of benefits dictates the amount an employee receives in indemnity payments, including the minimum and maximum indemnity payments an individual can receive. This means that if a highly paid employee gets injured on the job and their average weekly salary is above the maximum in their state’s schedule of benefits, the most they can receive is the maximum.

Average Weekly Wage

Every state calculates indemnity benefits depending on the injured employee’s average weekly wages. However, this calculation for the average weekly wage varies by state. To give you an example, Connecticut determines the average weekly wage by taking the last full year of wages and dividing it by 52, the number of weeks in a year. Texas calculates average weekly wages by dividing the wages of the last 13 weeks, or roughly the last 3 months of employment.

Disability Determination

Another factor in determining workers' comp indemnity payments is the extent of the disability. Workers’ comp injuries fall into four general categories:

  • Temporary disability
  • Permanent partial disability
  • Permanent total disability 
  • Death

Each type of disability is factored into a percentage, which is then taken into consideration when determining the weekly indemnity payments. Usually, total permanent disability is designated as 100% and a partial can be as little as 50%.

As an example, suppose losing your entire arm is worth 200 weeks of lost wages. If it is determined by your state that you can still work while only losing 40% of the arm’s usage, you would be entitled to 80 weeks of lost wages.

As another example, if an injured arm only recuperates up to 10% of its previous usage after a specified time period after a physician’s evaluation — typically 2 years — then you would be entitled to only 10% of the full 200 weeks, or 20 weeks of additional lost wages. 

To get a definitive answer about what you can expect to receive for indemnity payments, it is best to contact your state's workers' compensation board to find out how they are calculated.

If workers' compensation does not cover indemnity benefits for independent contractors, what will?

As a general rule, independent contractors are not required to have workers’ compensation insurance provided by employers. Depending on the state in which the independent contractor works, they may have to fund their own workers' comp insurance, seek out independent insurance policies, or self-insure through various financial vehicles.

That being said, there are a number of insurance policies designed to protect your financial future that can minimize potential risks while working as an independent contractor. You may want to invest in a joint-life annuity that provides your spouse with income if you should become disabled or deceased. Or you can ensure that your basic needs are met through long-term care insurance.

Because independent insurance agents aren’t tethered to a particular insurer, they can offer unbiased advice about companies that compete for your business. Independent insurance agents offer clear comparisons between policies and tailor your insurance policies to meet your comprehensive needs.

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. Find an independent insurance agent in your community here.

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