Losing an employee for any duration of time is stressful to a business owner – and knowing the different insurance offerings will help all parties. Both small business owners and their employees often get confused about the similarities and differences between workers' compensation and disability insurance. It's true that both insurance types offer coverage when an injury or disability prevents an employee from returning to work, but beyond that there are key distinctions in comparing workers' comp vs. disability.
Location is Everything
The biggest difference between workers' comp and disability concerns where the accident, injury or illness occurs. If an accident happens while employees are at work, then generally they will be covered by workers' compensation
. If, however, the injury happens outside of the workplace or outside of work hours, then that employee will typically need disability insurance for coverage. For a worker, this is one of the key benefits of having disability coverage.
On the other hand, a large benefit of workers' comp from the business owner's perspective is that it often protects against liability claims. This is because workers' comp is paid out for injuries, accidents and illnesses that the employer would otherwise be liable for. Usually (with some exceptions), if an employee receives workers' comp for a work-related condition, that employee cannot then sue the employer for compensation for that same condition.
Prevalence of Workers' Comp vs. Disability
Another notable contrast between workers' comp and disability is that workers' comp is much more prevalent than disability coverage. So, when you do need workers' compensation insurance? Each state is different, but most require employers to carry workers' comp coverage when they employ over a certain number of workers – typically three to five. Check your local requirements to make sure you're in compliance.
Requirements to offer disability insurance are far less common. A handful of states mandate that companies provide disability coverage for employees. In these cases, this type of coverage is commonly referred to as "state disability
" insurance. In other states, disability coverage may simply be offered on a voluntary basis or not at all. The general characteristics of most disability insurance programs are similar whether they are provided through a state-mandated program or on an optional basis.
Of course, individual employees are also free to purchase their own private disability insurance, although this is usually more expensive than receiving group disability benefits from an employer.
Disability Insurance Helps Attract Talent
Like all benefits, workers' comp and disability insurance are attractive to potential hires. In the case of disability coverage, however, the fact that it is not always offered, combined with its ability to cover accidents and injuries occurring outside of the workplace, can make it especially appealing to potential employees. For companies looking to enhance their benefits package, disability is worth considering.
Duration of Coverage
Another difference between the two types of insurance is that workers' comp will usually cover an employee for longer than disability benefits will. Workers' comp covers the injured employee until that employee recovers, or until the condition becomes permanent and they are no longer able to return to work. In such an event, the injured employee may be entitled to lifelong benefits and medical care. Disability payments, on the other hand, may have a limited payout period. In the case of state disability, for example, benefits are usually payable for a maximum of 52 weeks.
Workers' comp and disability insurance are both potential coverages for employees if an illness, accident or injury leaves them unable to work, but these two insurances should not be confused with one another. Want to learn more? Let us help! Give us a call
to learn how our flexible plans help you meet your legal obligations and attract quality talent, while allowing your employees to rest assured they'll be covered in case of an accident or illness.
The opinions expressed here by AmVenture.com columnists are their own, not those of AmVenture.com.