What is Workers’ Comp vs. disability insurance?
It is easy to confuse workers’ compensation insurance and disability insurance. They both can provide financial help with things like medical bills, short-term disability and permanent disability impairment to employees when they cannot work because of an injury or illness.
The main difference between disability and workers’ comp insurance is:
- Workers’ compensation is specifically for injured employees who suffer a workplace or illness on the job.
- Disability insurance is for injuries or illnesses that occur outside of work, but the employee suffers a temporary disability or long-term impairment that makes them unable to work.
WHAT’S THE DIFFERENCE BETWEEN WORKERS’ COMP AND DISABILITY INSURANCE?
| Workers’ Comp insurance | Disability insurance |
| Required in most states for business owners | Optional for business owners |
| Usually covers work-related injury or illness | Usually covers illness or injuries that occur outside of work that leave an employee unable to work |
| Can cover about 67% of lost income | Can cover 50-60% of lost wages |
| Can include death benefits (survivor benefits) to help support worker families | X |
| Can include benefits for job retraining for injured workers that can no longer do their job | X |
| Can include Employers Liability coverage to help protect your business if an employee files a lawsuit against you | X |
Why business owners choose Workers’ Compensation benefits
Several reasons make workers’ compensation coverage a good choice for sole proprietors or small business owners.
1. It’s required by law
Most states require business owners to carry workers’ compensation insurance if they have employees, but the rules vary. Be sure to check the state workers’ comp law requirements where you do business to make sure your business is in compliance.
Not carrying coverage when it’s required by state law can leave you open to serious fines and legal action from your employees.
2. It helps cover costs if there’s an accident or illness
Even if workers’ comp coverage is not a requirement for your business, it’s a good idea for business owners to have because it can help pay the costs if a worker gets sick or injured on the job.. These costs can add up quickly from:
- Medical costs for emergency or ongoing treatment.
- Reimbursement of lost wages during recovery, usually two-thirds of a worker’s average weekly wage.
- Employee lawsuits if they take legal action.
Without a workers’ comp policy, you or your business can be held responsible for covering these expenses on your own.
3. It provides important financial protection for employees
Your employees are an important part of your business success. If your worker has a covered work accident, workers’ comp can help them get through it quickly.
Benefits for workers’ comp, such as help with medical care or medical expenses, depend on your location and the type of work injury you’ve endured
Workers can also get support in the event of a permanent injury, and even death benefits for their dependents should their work-related illness or injury become fatal.
> Learn more about how to file a workers’ comp claim.
Why business owners choose disability insurance benefits
Unlike workers’ compensation, disability insurance is usually optional if you have employees.
Disability insurance can help when the illness or injury that prevents a person from working doesn’t happen on the job.
Benefits for this type of insurance are usually divided into short-term and long-term disability. Support is usually 50-60% of wages and it can be provided for days, weeks or for life, depending on the claim.
Many employees choose to supplement employer-paid disability insurance with their own private plans. These policies may work in conjunction with government-funded social security disability, depending on the individual circumstances.
Note that NEXT does not sell disability insurance.
