Owner Exclusion from Workers’ Compensation Insurance

Owner Exclusion From Workers’ Compensation Insurance

Most states require employers to purchase a workers’ compensation insurance policy to cover workers who are injured or made ill due to workplace activities and exposures.

However, the next common questions include, “What about owners and executives? Does the business need to cover leadership under workers comp?”

While owners and corporate officers can exclude themselves from coverage, there are potential drawbacks to opting out that need to be seriously considered before you make your decision.

In a general sense, here’s the breakdown:

  • Executive officers of a corporation are usually included for coverage under each state’s workers’ compensation laws unless they file for an exclusion from the policy. 
  • Partners and sole proprietors are generally exempt from coverage but may elect coverage under the policy.

While excluding certain individuals from your workers compensation policy can reduce premiums, it is not one of our preferred methods for reducing your workers’ compensation premiums.

Benefits of Workers’ Compensation Insurance

The benefits are the same for everyone covered under a commercial workers’ compensation policy, including officers.

Workers’ compensation coverage pays benefits to workers injured on the job. These benefits include medical care, a portion of lost wages, and permanent disability. It also provides death benefits to dependents of employees killed from a work-related accident.

A typical health insurance policy specifically excludes work-related injuries unless there is a rider attached to the policy that adds business coverage. Furthermore, health insurance does not cover disability the same way that workers’ compensation insurance does.

You can find more workers comp resources here.

Why Would Someone Opt Out of Workers’ Compensation Insurance?

Many officers and business owners make the following assumptions when opting out of workers’ compensation insurance:

  • They assume that their medical insurance is enough to cover them in the event of an injury incurred at the workplace. 
  • They assume that they would never want to file a workers’ compensation claim against their own company, so they don’t see the need to pay premiums for a policy that they won’t use. 

Unfortunately, these types of assumptions and the myths they’re derived from can cause serious harm to a business.

Drawbacks of Leaders Opting Out 

Even if a corporate officer spends the majority of his or her time at a desk, there is still a risk of injury. And if an injury occurs, it’s likely that the officer’s health insurance policy will have an exclusion for work-related injuries.

Without workers’ compensation insurance, the cost of treatment for those injuries would have to be paid for by the company or come out of the pocket of the officer. Neither of these scenarios is helpful in operating a profitable business.

Opting out of workers’ compensation insurance may save some money (and depending on the leader’s job function that savings could be quite minimal), but it also transfers risk to the employer and to the corporate officer(s) who chooses to opt-out of coverage.

Additional Premium Charges 

If an officer rejects coverage, he or she will most likely have to file a form with the state and/or the insurance provider prior to obtaining coverage for the rest of the company.

In absence of this notification, the insurance provider will assume that the officer is electing coverage, and will charge him or her a premium based on standard payroll for industry and job function.

Additionally, the carrier will look to recoup the premium unpaid premium dollars at audit. This can lead to surprise audit bills the company was not expecting.

Be sure that if you do choose to opt-out of worker’s comp coverage that your insurance agent has provided you the appropriate exclusion form.

Option to Self-insure

With self-insurance, a company can avoid paying workers’ compensation premiums by serving as its own carrier.

The catch is that the company has to agree to post a bond or put money aside to pay for any claims that may occur. Each state has its own self-insurance requirements.

For the vast majority of businesses self-insurance is not a realistic option from a profitability standpoint.

The Rub

While workers’ compensation insurance will remain forever an expense that business owners loath to pay, it is possible to minimize your worker’s comp expense through proper safety procedures, good process and the right programs in place.

This is not the way most insurance agencies will talk to you about workers comp.

Rogue Risk is different.

We can help.

If your current insurance professional has never addressed issues such as total cost of risk or return to work programs with you before, then I’d encourage you to reach out to us today.

I look forward to introducing you to a new way of viewing your insurance program.

Thank you,

Ryan Hanley

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