Workers' compensation insurance provides benefits to employees for work-related injuries or illnesses, whereas general liability insurance covers claims of bodily injury or property damage inflicted upon third parties by your business operations.
Understanding the differences between these policies is critical to safeguarding your business and complying with legal requirements.
General liability insurance, also known as business liability, can help cover claims, damages, and attorney fees that result from harm caused by a business’s products, services, or operations.
This could include customers, vendors, partners, and other people who may come into contact with your business. For example, a customer slips and falls in your restaurant or trips in your store, and breaks a bone.
The policy also covers property damage if your business or employees damage the assets of a third party in the line of work. For instance, if your employee spills a bucket of paint in the customer’s office, your general liability policy would cover the cost of the carpet replacement.
General liability will also cover legal fees, court costs, and damages for lawsuits that are covered by the policy. It provides coverage for slander, libel, and copyright infringement.
While not legally required, general liability is widely recommended as a basic insurance product for businesses to have. Without general liability coverage, a small business would have to pay the cost of lawsuits or settlements from its own business and/or personal assets.
A workers’ compensation policy protects both employer and employee in case the employee sustains a work-related injury. Employee protections are in the form of payment for medical bills related to the injury and lost wages as a result of being unable to work. Employer protections are in the form of limited financial coverage for legal fees and damages.
A workers’ comp policy covers medical care for an employee who is injured (or contracts an illness) in their line of work.
If needed, the policy would cover rehabilitation to return the worker to health and transition them back to the workforce. This rehab might occur in conjunction with a return-to-work program. As the name suggests, return to work often helps an injured employee transition back to the workplace through part-time or remote work, modified roles and responsibilities, or other accommodations.
If the worker is unable to return to work after the injury, workers’ compensation can cover disability benefits.
In the event of an employee fatality, the policy pays out death benefits to the surviving family.
If the workers’ comp claim is challenged or an employee sues the employer for damages, the policy would defend and indemnify the employer. Insurance would cover the employer’s legal defense for the employer, plus any monies awarded to the employee.
Maintaining current work comp coverage for all employees is legally required in many U.S. states. The specific requirements are determined by the workers' compensation laws in your state. For example, some very small businesses may be exempt, and high-risk businesses like construction might have stricter requirements. Always refer to your state’s requirements to make sure your business is compliant.
In most states, a work comp policy — just like general liability —can be purchased in the private marketplace from an insurance carrier or independent agency. In Ohio, North Dakota, Wyoming and Washington, employers must purchase their workers’ compensation policies directly from the state. These are called monopolistic states.
General liability insurance primarily protects against third-party injuries or damages arising from your business activities. Its rates aren't regulated, giving businesses a range of pricing options.
On the other hand, workers’ compensation insurance is designed exclusively for job-related employee injuries or illnesses. It's not just an optional safety net; in most states, it's mandatory. Moreover, workers' compensation rates are often set or overseen by state regulatory bodies.
Grasping these distinctions ensures your business not only complies with the law but is also suitably protected against varied risks.
| General Liability | Workers’ Compensation |
|---|---|
| Covers injuries to a third party or damage to their property | Covers injuries to employees |
| Protects third parties | Protects employees |
| Covers legal fees in suits brought by a third party | Covers legal fees in suits brought by an injured employee |
| Not legally required, but often contractually required | Legally required |
| Not regulated | Regulated at the state level |
With few exceptions, all businesses should carry general liability and workers’ compensation policies to protect their employees and their assets. Both policies are similar in that the price is determined by the coverage limits you choose, the size of your business, and the nature of the work.
While it varies by region and industry, many places require businesses with employees to have workers' compensation. Some exemptions might exist for very small businesses or certain industries.
Generally, it's not legally required, but it's often mandated by clients or landlords for business operations, especially in industries where there's a higher risk to third parties.
Typically, they are separate policies, each tailored to specific risks. Some insurance providers might offer bundle deals, but the coverages remain distinct.
Workers' comp rates are often regulated, sometimes set by state agencies based on job risk classifications or classification codes. General liability premiums are based on business type, location, and other factors but aren't state-regulated.
Without workers' compensation, businesses risk severe penalties, including fines or potential lawsuits, especially if an employee gets injured on the job.
While all businesses can benefit, those that interact regularly with clients or the public, especially in physical spaces, find general liability particularly important.
Requirements vary, but sole proprietors or self-employed individuals without employees might not be mandated to have workers' compensation. However, some clients might still request it for contract work.
It depends on the nature of the incident. If an event causes both employee injury and third-party property damage, claims might be made on both policies.
