Employers liability insurance 101

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There’s a special moment that marks progress and growth as a small business owner: hiring your first employee. Though technically you’ve always been “an employer” by definition, hiring employees brings this feeling to life.

While this hire comes with a decreased workload for yourself, it’s at the cost of higher responsibility. When working alongside you at the office, remotely, or on a jobsite, you’re responsible for their health and well-being as their employer.

Because of the high costs of medical care, recovery, and lost wages due to a work-related injury, you need to ensure that you’re covered. For this, there’s employers liability insurance.

Let’s dive in.

What is employers liability insurance?

Employers liability insurance covers employers should one of their employees (current or former) get sick, injured, or die in a workplace-related incident.

You might think this sounds like a workers’ compensation policy. That’s because employers liability insurance often includes workers’ comp as one branch of their overall policy.

To understand the difference, let’s break down the two.

Workers’ compensation vs. employers liability insurance

Because these two cover similar areas of a business’s liability, it’s important to note the key differences:

State requirements

  • Workers’ compensation policies are often state-mandated policies for businesses who have employees.
  • Employers liability insurance is not required by states, however, they can be purchased.

Covers work-related injury, sickness, and death

  • Both workers’ compensation and employers liability insurance can help businesses cover these.
  • However, workers’ comp policies are often set at a lower amount than employers liability insurance and can lead to some portion of the claim needing to be covered by the business.

Proving negligence

  • For workers’ compensation policies to pay out, the employer’s negligence has to be proved.
  • Employers liability insurance will (typically) not need to prove negligence and instead will provide coverage, assuming there’s no illegal action.

Exceptions to which positions are covered

  • Workers’ compensation policies (typically) have exceptions for employees within agricultural or domestic help occupations.
  • Employers liability coverage will (typically) not discriminate by occupation.

Covers cost of lawsuit regarding the work-related injury

  • Workers’ compensation will not cover the costs of the lawsuit for the work-related injury.
  • Employers liability insurance will assist with both the medical expenses of the work-related bodily injury, as well as the costs of hiring a legal defense and any payouts (should the employee win the case).

Covers traveling injuries

  • Both workers’ compensation and employers liability insurance will cover work-related traveling injuries with some exceptions. The employee injury would not be considered covered by either policies for:
    • Commuting to and from work
    • Alcohol or drug-related incidents
    • “Rough play” or “horseplay” (i.e., physical activity that is beyond the scope of work)

One, the other, or both?

If you have workers’ comp, do you need to switch to employers liability insurance? Or vice versa? Or do you need both?

The answer is, as is often the case, it depends.

Risk profile – Consider your employees’ job demands and create a risk profile of their occupation. Answering the following questions will help you understand both the rate of injury and the cost per injury of an employee:

  • Does their job regularly require active physical labor?
  • What is the likelihood of an injury occurring?
  • If an injury does occur, what is likely to be injured?
  • What would medical expenses and recovery costs be?
  • How long would a typical injury take them out of commission?

Cost-benefit analysis – Using this risk profile, structure a cost-benefit analysis to weigh the option of both policies. Consider that a state-mandated workers’ compensation policy will offer you the minimum coverage, thus being the cheapest option. An employer liability insurance that includes additional coverage outside of workers’ comp will cost your business a higher premium, but can protect your financials in the long run.

While the question of having additional coverage is always up in the air for businesses who want to hedge against risk, there is one notable point: No insurance coverage is the wrong answer.

The costs of work-related injuries

Apart from being mandatory in most states, having a workers’ compensation policy (or one through your employers liability insurance), is a smart business practice.

According to data collected in 2016 and 2017 by the National Council on Compensation Insurance1:

  • The average workers compensation claim was $40,051
  • Vehicle-related accidents average: $78,293
  • Slip- and fall-related accidents average: $46,592
  • Cut, punch, or scrape accident average: $22,509
  • The cost of workers’ compensation claims combined with the cost of goods and services that were lost due to time off, averaged to $1,100 per worker.

While these are averages across a large number of industries, sectors, and states, it does put the cost-benefit analysis into perspective.

Even if you only have one employee in a low-risk position, having some form of insurance coverage (on average) is beneficial. Whether you need more through an employers liability insurance policy depends on your individual business.

Covering your business

Whether you’re hiring your first employee or your tenth, you need to ensure that you’re covered from any work-related incident. Employers liability insurance and the included workers’ compensation policy can help protect you where no other policy can.

Small businesses need insurance that scales with their business. At first, you may not be required to have workers’ comp due to not having any employees. But as you take on larger clients and expand your enterprise, more employees and the subsequent responsibilities will fall on your shoulders. This means more ways in which your business can be hit financially.

To stay in-the-know and protect your business, there’s Thimble.

Thimble offers general liability insurance and professional liability insurance to cover your business from third-party claims of bodily injury, personal and advertising injury, property damage, and errors and omissions.

It’s flexible coverage that works when you do, so you’re never caught overpaying. To protect your business, download the Thimble app or click “Get a Quote,” answer three questions, and purchase your policy. All it takes is 60 seconds.

And should you want total coverage, Thimble’s business insurance can help protect you from common third-party claims.

Sources:

Our editorial content is intended for informational purposes only and is not written by a licensed insurance agent. Terms and conditions for rate and coverage may vary by class of business and state.

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