Workers compensation insurance and general liability insurance are important coverage types for a small business. Together, they pay for a wide range of problems, including injuries and illnesses to your employees, accidental injuries and property damage to others and other types of claims, such as reputational harm.
Workers compensation insurance is required in most states, even if you only have one employee. General liability insurance typically isn’t required by law for most professions, but it’s an essential coverage type that every small business should have.
What Is Workers Compensation Insurance?
Workers compensation insurance is a type of small business insurance that pays for employees’ medical bills and partially lost wages if an employee becomes ill or injured because of their job. For example, if your employee breaks an arm while performing a job-related task, workers compensation insurance will pay for their medical bills and a portion of their lost wages.
Workers comp also pays for ongoing care, such as physical therapy, lost wages for disability and death benefits if the employee dies due to workplace injury or illness. Death benefits can include a burial fee and survivor benefits which are a portion of the deceased worker’s salary for a certain time period. (The exact rules for survivor benefits vary by state.)
What Is Not Covered by Workers Comp?
Workers compensation insurance doesn’t generally cover:
- Commuting to and from work, though an employee may be covered if they’re in a company vehicle or don’t have a physical office.
- A workplace fight is not covered by workers comp, but if the fight was about work it may be covered.
- Many states exclude workers comp coverage if substance abuse or intoxication contributed to the injury.
Who Needs Workers Compensation Insurance?
Workers compensation insurance is required for businesses with employees in most states, but the exact minimum amount of coverage varies by state and type of business. Companies without employees or those who are self-employed may also need workers compensation, but it depends on your state.
Four examples of how workers compensation laws vary by state include:
Employers must provide California workers compensation insurance benefits to their employees under California Labor Code Section 3700. The business must provide workers compensation coverage for each of those employees, including part-time workers.
Florida workers compensation insurance requirements include:
- Employers who have four or more employees, including business owners who are corporate officers or limited liability company (LLC) members.
- Construction employers who have at least one employee, including business owners who are corporate officers or LLC members.
- Agricultural employers with six regular employees and/or 12 seasonal employees who work more than 30 days during the season but no more than a total of 45 days in a calendar year.
Michigan workers compensation insurance requirements include:
- All public employers.
- All private employers who regularly employ at least one employee who works 35 hours or more per week for 13 weeks or longer.
- All private employers who regularly employ at least three employees at one time, including part-time employees.
- Agricultural employers if they employ at least three employees, who work 35 hours or more per week for 13 or more consecutive weeks.
- Household employers with domestic servants who work 35 hours or more per week for 13 weeks or longer.
Washington workers compensation insurance is required for businesses with at least one employee, including part-time workers.
What Is General Liability Insurance?
General liability insurance is a type of small business insurance that covers your business for accidental property damage and injuries caused to others, such as a customer. It also covers problems like copyright infringement, reputational harm and advertising injury. General liability insurance also covers legal costs, judgments and settlements if you are sued because of an accident or a claim such as reputational harm.
General liability insurance includes coverage for these issues.
|Coverage||When a claim may be made||Example|
|Bodily injury caused by your business operations||Your business accidentally causes bodily injury to someone else (not including your employees).||Medical expenses are covered if a customer is injured on your business property. If the customer decides to sue your business, general liability insurance also pays your defense costs.|
|Property damage liability claim||Your business accidentally causes property damage.||An employee accidentally damages a customer’s smartphone or an outdoor sign falls on a customer’s car.|
|Advertising injury||Your business violates a copyright or damages someone’s reputation.||Your business uses artwork in an advertisement without getting permission or you do something that harms someone’s reputation, such as saying something negative in a media interview.|
What Is Not Covered by General Liability Insurance?
General liability insurance doesn’t cover many types of issues that a company may face. Problems not covered by general liability insurance include:
- Employee injuries and illnesses
- Business’ property damage
- Business-related car accidents
- Business-related errors
- Liability damages beyond your coverage limits
Who Needs General Liability Insurance?
General liability insurance isn’t required by law for most professions, but work contracts, licenses and leases may require that you get the coverage.
For instance, real estate agents, accountants and dentists need licenses and those licenses require general liability insurance. General contractors and landscapers may need coverage as part of working with larger companies. Some states require construction contractors and developers to have general liability insurance in their licensing requirements. Professionals who rent an office may need general liability insurance to get a lease.
Other situations in which you may benefit from general liability insurance include:
- You have customers or vendors who visit your business.
- You use third-party locations for business activities.
- You advertise or market your business.
- You use social media professionally or personally.
- You have temporary employees.
Differences Between Workers Compensation and General Liability Insurance
Three key differences between workers comp and general liability coverage are who is covered, whether it’s required and how each is sold.
|Differences||Workers compensation insurance||General liability insurance|
|Who it covers||Employees||Claims involving non-employees|
|Requirement||Required in most states if you have employees||Not required by law, but may be mandated by licensing boards, clients, landlords or financial lenders|
|How it’s sold||On its own||On its own or as part of a business owners policy (BOP)|
Cost Differences Between Workers Comp and General Liability
A stand-alone general liability insurance policy costs an average of $42 per month. You can typically save money by getting general liability insurance through a business owners policy (BOP). A BOP bundles general liability insurance, business property insurance and business interruption insurance and costs an average of $57 per month. A BOP is cheaper than buying these three essential coverage types separately.
Workers comp costs an average of 93 cents for every $100 in payroll annually, according to The Hartford, which reports that most of its customers with less than $300,000 in payroll pay $70 per month, on average. The exact rate for your small business can differ significantly depending on the industry, state and past workers comp claims.
If you work in an industry like accounting or finance, your business will be viewed as less risky than someone working in the construction industry. This will mean lower workers compensation insurance rates.
The state where you live impacts the rate because each state has its own workers compensation laws.
A claims history also influences workers compensation premiums. If your business has had a number of workers compensation claims in the past, you’ll see an increase in your workers comp insurance costs. Both the number of claims and the seriousness are considered when determining the workers comp rate for a business.
Which Type of Insurance Does Your Business Need?
There are multiple types of coverage, but whether you need them for your small business insurance depends on your profession, company and risk.
|Type of coverage||What it covers|
|Business interruption insurance||Lost business income if you’re unable to open your business on a temporary basis due to a loss covered by the policy, such as a fire or theft.|
|Business owners policy (BOP) insurance||Combines general liability coverage with commercial property insurance and business interruption insurance.|
|Commercial auto insurance||Car accidents while doing company business.|
|Commercial property insurance||Theft and damage of company property.|
|Commercial umbrella insurance||Liability coverage beyond your general liability insurance policy.|
|Employment practices liability insurance||Settlements for claims against your business for wrongful termination or violations of employee rights|
|Errors and omissions insurance (E&O), also called professional liability insurance||Claims of mistakes made in professional services.|
|General liability insurance||Bodily injuries and property damage accidentally caused by your business, and advertising injuries.|
|Inland marine insurance||Business property while it’s temporarily stored at an off-site location or in transit over land by automobiles, trucks and trains.|
|Workers compensation insurance||Employee injuries and illnesses.|
Should I Have General Liability and Workers Comp Insurance?
If you have any employees, you’ll be required to have workers compensation insurance in most states (even if it’s just one employee).
You may be required to have general liability insurance depending on your state and profession. For example, some states require construction contractors to have it. You also might need to have general liability insurance as a condition of your licensing, contract or office lease.
Even if you aren’t required to have general liability insurance, it’s worth having. An expensive lawsuit for a problem like bodily injuries, property damage or reputational harm could potentially bankrupt your company. Without general liability insurance, you would have to pay for these types of claims out of pocket.
To read the full article, click here.