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What Limits of Liability Are and How to Choose What's Right for You

buying workers compensation, policy, quote
  |   2 minute read

workers-compensation-shoppingWhat are the limits on a typical small business workers’ compensation policy?

A. $100,000
B. $500,000
C. $1 million
D. No limit

The answer is actually “all of the above.”

Confused? We’ll explain.

What Limits of Liability Are - And Are Not

All commercial liability insurance policies have “limits of liability,” or a cap for what the policy will pay out to a claimant. Because of this, small business owners commonly misunderstand their limits of liability when buying a workers’ compensation policy.

Workers’ compensation is a unique system designed to protect employees from unsafe work conditions. Unlike other commercial policies, the state government legislates the requirements for its work comp system. This includes which employers are legally obligated to carry insurance, fines for not having coverage, reporting requirements for workplace injuries, and more.

The limits on a workers’ compensation insurance policy are divided into two parts.

Employee Benefits

Part A of the policy covers medical expenses, rehabilitation expenses and lost wages as a result of being unable to work. Or, it pays out death benefits to the employee’s dependents.

Employee benefits generally have no limits and no exclusions. The insurance carrier will pay out the claim to cover any medical bills necessary to treat the employee’s injury, illness or rehabilitation. Additionally, claims cannot be declined or denied, unless the employer presents proof of fraud.

The state’s governing body may set a limits to amounts paid out for lost wages.

Employers Liability

Part B of the policy addresses the employer’s liability in the case of a lawsuit. If the employee claims the employer was negligent, they might choose to sue the employer for damages in addition to receiving work comp benefits. In this case, Part B would cover the employer’s legal defense for the employer, plus any monies awarded to the employee.

This portion of the policy does have limits, or the maximum amount the policy will pay out, which the employer can choose when purchasing insurance. Limits are often represented as three numbers; common limits are:

100 / 500 / 100

500 / 500 / 500

1,000 / 1,000 / 1,000

Amounts are in U.S. dollars and 100x the number shown on the policy. For example, "100 / 500 / 100" is actually $100,000 / $500,000 / $100,000. Likewise, "1,000" would pay out a maximum of $1 million.

The first number is the amount paid out per accident; the second, the maximum per disease per policy year; and the third, the amount paid out per employee.

If the employer reaches any of these limits, the additional expense would fall on another policy (such as umbrella policy) or would be an out-of-pocket expense.

You Might Also Like: Learn More About Workers’ Compensation Cost

How to Choose Your Limits of Liability

If you rent or contract work with other companies, you likely want a $1 million limit. Landlords and work contracts often require the highest threshold of coverage.

Fortunately, higher limits on small business work comp policies are typically very affordable, and worth the additional coverage. For example, a workers’ compensation policy with $1,000 in premium may pay less than $100 for essentially 10x the coverage.

Regardless of what limits you choose, you can often endorse, or update your policy limits, mid-year.

Need work comp? Get a quote in as little as two minutes with WorkCompOne.

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Tags: buying workers compensation, policy, quote