Getting hit with a work comp claim without a policy isn’t just costly—it’s illegal. Misunderstanding your state’s work comp laws and how coverage works can cause legal and financial headaches for your business.
Read on for the top myths about work comp, and mistakes that small businesses tend to make.
1. They think work comp is the same as general liability.
While commonly confused, a general liability policy will never cover a workers’ compensation claim, or vice versa. General liability covers third parties who suffer injury or property damage as a result of your business. Work comp exclusively covers your employees for injuries that occur in the line of work.
In nearly all cases, businesses of any size should carry both general liability and workers’ compensation policies.
2. They misunderstand workers’ compensation limits.
“Limits of liability” may be a familiar insurance term, but it doesn’t apply to work comp. In a way, there are no limits to a work comp policy. Why?
A work comp policy has two parts:
- Employee benefits: Covers medical expenses and lost wages as a result of being unable to work. Employee benefits generally have no limits and no exclusions, and claims cannot be declined or denied, unless proof of fraud can be established.
- Employer liability: If the employee believes their injury was the result of the employer’s negligence, they might choose to sue their employer for damages on top of work comp benefits. In this case, the policy would cover the employer’s legal defense for the employer. This portion of the policy does have limits, which you can choose when you purchase the insurance.
3. They try to put “Additional Insured” status on their policy.
Similarly, business owners cannot put “additional insured” status on their work comp policy, or have another company put its employees on theirs.
“Additional Insured” status is a term used for liability insurance, which applies to policies like general liability and auto insurance. It denotes that you are offering your policy benefits to another party you’re engaging in business with, and is commonly used (and in some cases, contractually required) by businesses. However, it does not apply to workers’ compensation, because work comp can only cover your direct employees.
4. They don’t check their state’s requirements.
Workers’ compensation laws are regulated at the state level, which means that depending on what state you work in, expect differences regarding:
- Who needs to be covered.
- Where you can buy it.
- How much it will costs.
Tip: Your business must comply with the states where your employees perform work—not necessarily where the business was founded or is based. If your business operates in multiple states, or employees travel across state lines to work, you may need to modify your policy to guarantee coverage.
5. They wait until it’s too late.
Don’t wait until your coverage has lapsed, you need to provide proof of insurance, or—worst of all—you face a claim. Keeping your business covered with a work comp policy can be easy and affordable.
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