What is Workers' Compensation?

Workers’ compensation insurance provides medical and wage benefits to people who are injured or become ill at work. The coverage is mandated by each state and the wage and medical benefits vary by state. Workers’ compensation is considered a social insurance because it relies on a social contract between management and labor, wherein exchange for purchasing workers’ compensation insurance, business owners are protected from civil suits from their workers who become injured on the job. Yet each party's benefits has limitations. Workers’ compensation insurance is purchased by businesses, and is underwritten by insurance companies and, in some states, underwritten by publicly supported state funds.

How does workers’ compensation insurance work?

Workers’ compensation is meant to protect both employers and employees should an illness or accident arise while on the job. Each state has its own rules and regulations that employers must follow to ensure that proper coverage will be provided for injured employees.

Employees filing claims for workers’ compensation insurance can only do so if their injury or illness is caused by their duties while on the job. Common examples include injuries that have resulted from a slip or fall, a strain on the body from heavy lifting, or an accident while operating machinery.

How is the cost of workers’ compensation insurance determined?

Similar businesses in each state, that exhibit comparable workplace injury patterns and costs, are grouped into “classes.” Rates are determined for each class based on the prior five years of loss costs for all businesses within that class. This provides an equitable system where rates are charged commensurate with the actual loss experience of the class of business. Economic factors for each state are then overlaid onto this data to determine the rate for each class in a given state.

A system called “experience rating” allows for modification of the class rates based on the loss history of an individual business. This system provides business owners a significant amount of control over the cost of their workers’ compensation premium – safe businesses are rewarded with lower premiums and unsafe businesses are penalized with higher premiums.

Who is required to carry workers’ compensation insurance?

All states, with a small number of exceptions, require businesses with employees who are not owners, to purchased workers’ compensation coverage for those employees.

Businesses that fail to provide workers’ compensation coverage can face severe and costly repercussions including payment of claims out of pocket, fines and possible imprisonment, as well as possibly losing the right to conduct business in the state.

How workers’ compensation claims work

The injured parties must visit a healthcare professional immediately so a doctor can provide medical reports to support any claims. Employees can then begin the claims filing process with the insurance company, being sure to include any state-mandated paperwork or forms. Once these claims are approved, the recipient will receive their compensation payments.

How do I get workers' compensation insurance?

Contact an agent


Insurance terms, definitions and explanations are intended for informational purposes only and do not in any way replace or modify the definitions and information contained in individual insurance contracts, policies or declaration pages, which are controlling. Such terms and availability may vary by state and exclusions may apply. Discounts may not be applied to all policy coverages.