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Why do you need workers compensation?

Posted by Anonymous on September 16, 2009
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Reviewed by JohnUSA on November 11, 2009.

More food for thought: It is usually not a matter of "if," but "when" an employee will be injured on the job.

And, the simple answer to your question...is the answer to another question: Do you want to pay the employee's medical bills from an on-the-job injury? The answer is: Heck, no.

There is no way you can predict how severe, how costly any medical bill will be, let alone ongoing medical costs. And, your business' contribution to the workers' compensation fund is thus your first line of defense from paying any such bills from 1) your hard-earned income, or, worse 2) your personal assets (in some instances).

Depending on the business you are in and how well you wish to protect your current cashflow and assets AS WELL AS future income, then you may also decide that buying "extra" insurance for employee injuries is a very smart thing to do.

This extra insurance is generally called, "Employer's Stop Gap." This particular insurance sits on top of any mandatory workers' comp insurance. When an injury is severe enough that it taps out the mandatory insurance limit (say $100,000 or whatever the limit is in your state -- and there's almost always a limit on how much the state will pay) then this extra coverage (Stop Gap) kicks in and keeps on paying.

The alternative to Stop Gap, of course, is for the business owner to open up their check book and start writing those checks!

If there is any conceivable way you have an employee who can be injured on the job, it's worth a conversation with your insurance agent to explore this method of protecting your business.

Reviewed by TSummerfield (not verified) on September 16, 2009.

Workers' compensation insurance covers injuries and occupational diseases picked up at work. It is no-fault, which means employers are liable even if the employee has contributed in any way to the illness or injury. It is required in every state except Texas, although requirements vary from state to state.

Some states have an exemption for companies with less than 3 - 5 employees. Many states also give the employer an option to self-insure, that is covering the costs from the injuries or illness themselves.

No matter what your situation, you should contact your state, and work with your attorney, insurance company and accounting people to come to the right decision for you and your business.