Author: Kimberlee | April 7, 2025
Edited by: Kimberlee and Reviewed: Kimberlee
You know that your business needs insurance, but what type of insurance exactly? You may find yourself buying a business owner’s policy (BOP), and the law might tell you that you need workers’ compensation insurance. But will employer’s liability insurance cover you the same way? The simple answer is no. You might need both policies to properly protect your business.
Different types of insurance policies cover you for different types of claims or protect you from certain types of lawsuits. Every business is at risk for claims and lawsuits and must determine where the biggest risks lie to get the right policies to protect against them. Without insurance, the company could be on the hook for tens of thousands of dollars in damages or more. Business insurance mitigates this risk by assuming the financial risk for the small business owner.
Employer’s liability insurance is often part of a workers’ compensation policy. However, in monopolistic states, small business owners may need to get a separate policy. It covers the business from lawsuits resulting from employee claims where they may have been injured on the job or become ill from the work, and this claim isn’t covered by workers’ compensation insurance. The states where the business would have to get a separate policy include North Dakota, Ohio, Washington, and Wyoming.
Small business owners should consider employer’s liability insurance if their workers’ compensation insurance policy doesn’t include it. Without it, there is a gap in insurance, which means that certain claims might not be paid by workers’ compensation insurance. Ask your insurance agent if there is coverage. If not, you might want to get a policy to fill the gaps.
Unlike workers’ compensation insurance, which is required by law, employer’s liability insurance typically isn’t. This means that employers will have to determine if employees are at risk and if they need to obtain a second policy. Doing so offers protection for employers where the claims are paid without financial loss to the company.
The employer’s liability insurance policy pays for medical bills, lost wages, and legal fees associated with employee injuries that happen on the job. It specifically covers those injuries that are not covered by a workers’ compensation insurance policy.
As with any policy, insurance carriers put forth a set of exclusions for the policy. Notably, the employer’s liability insurance will not take the place of the legally required workers’ compensation policy. It doesn’t cover third-party claims of injury or property damage. For that, the employer needs a general liability policy.
Employer’s liability insurance provides financial protection for employers from employee claims. These claims can be quite expensive and would be financially devastating for many small business owners to pay out-of-pocket without the insurance. It also provides a legal defense at no additional cost if the claim results in a lawsuit of negligence against the business.
Workers’ compensation insurance is a required insurance policy in most states where a business has employees. The policy pays if an employee sustains an injury on the job or gets ill from his duties (such as inhaling fumes). Policies are required in all states except Texas where it isn’t required. Just because it isn’t required there doesn’t mean most businesses go without it. The potential costs are enough to have a small business get a policy.
Considering workers’ compensation insurance isn’t an option for most employers across the states. It is the law. Sure, there are states like Texas where it isn’t required and other states where you can have up to five employees without needing the policy. But even if it isn’t required, a small business should consider it for the financial protection it provides in the event of a financial loss when employees get hurt.
A workers’ compensation policy is designed to pay for employees’ injuries. The financial loss that it pays includes the actual costs of medical care and rehabilitation, lost wages, and even death benefits, if applicable. Workers’ compensation may not cover all injury claims, especially if negligence on the employer’s part is determined.
Employees can work with the assurance that they are covered if they get hurt on the job. Their medical bills and lost wages will be covered and paid. This means they don’t have any out-of-pocket expenses or financial loss due to the injury.
The key difference in the coverage of workers’ compensation versus employer’s liability insurance is negligence. If the employer is determined to be negligent and put employees at undue risk in dangerous work environments, the workers’ compensation policy may not cover them. In these cases, that’s the gap the employer’s liability insurance covers. Of course, it should be noted that workers’ compensation is required by law in most states where employer’s liability is not. However, many workers’ compensation insurance policies do include employer’s liability insurance.
Both types of policies provide a protective function to both the employer and employee. The claims process is the same, where the insurance company wants to document the injury and the circumstances behind it to determine if a claim is covered. Both types of policies are important in the risk management of a small business.
Employers will need both policies if they are conducting business in a high-risk industry where the work environment may claim that the employer was negligent, leading to injury. It is also a comprehensive risk management strategy to have both. In some cases, especially with obtaining workers’ compensation, there is a legal compliance component that mandates employers have the policy.
Work with a reputable insurance agent to determine if you need either or both of these policies. Your agent will understand the state requirements and know whether or not employer’s liability is included in the workers’ compensation. Get the coverage you need without overspending on duplicate policies.
About the author
Insurance
April 11, 2025
Insurance
April 9, 2025
Insurance