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Workers’ compensation and general liability are two distinctly different, but necessary, small business insurance coverages. Both types of insurance protect a business if there are injuries in the workplace, but their emphasis is different. Workers’ comp insurance protects small businesses and their employees by providing benefits for most types of employees who are injured on the job. General liability insurance, on the other hand, can provide coverage for injury or property damage to non-employees from incidents that occur on your premises from your products or operations, certain legal defense costs if your company is sued and reputational damage due to libel, slander or copyright infringement.
Another difference is that workers’ compensation is limited to your employees, whereas general liability insurance will expand to those who are affected by your business. Also, workers’ compensation coverage has the ability to transfer disbursements. This means that workers’ compensation coverage can function similarly to other types of insurance, such as health, disability, businessowners’ policy, life or general liability insurance - but it doesn’t replace these policies.
State law mandates that small business owners must have workers’ compensation and unemployment, while some states also require additional insurance, like disability insurance. Also, each state has different requirements for workers’ comp insurance. Some states require that businesses purchase workers’ compensation insurance if they employ just one employee, while other states require coverage after five employees. Some regions will require workers’ compensation insurance if working with government entities — some will not. You can see the specific state regulations by visiting U.S. Department of Labor’s State Workers’ Compensation Officials website.
Based on state regulations, workers’ compensation insurance is compulsory for small businesses, but general liability insurance is not. This determination could bring a higher level of risk to an organization if they do not get coverage. For example, a small business owner should ask themselves if they were sued for an incident, could their business withstand the liability costs?
Additionally, more differences between workers’ comp and general liability include:
Workers’ Comp Insurance
Workers’ compensation insurance protects small businesses and their employees by providing benefits for most types of employees who are injured on the job. These benefits can address medical care and related medical costs, retraining, lost wages until the employee can return to work or compensation for permanent disability. Also, workers’ compensation benefits can also go to a surviving family member if a worker dies on the job.
The main purpose of workers' compensation is to address legitimate workplace accidents and carelessness. This includes incidents that occur off the employer's premises but in the service of the job, such as injuries sustained while traveling for work. It can cover both short- and long-term issues, like falling off a ladder or acquired carpal tunnel syndrome. Workers’ comp insurance helps protect your most valuable asset – your workforce. If your injured workers get the help they need, they can get back to full strength and help your business continue to succeed.
Workers' comp insurance provides payments regardless of who is at fault for work-related injuries. In exchange for this “no fault” environment, employees generally waive their right to litigation. In these situations, workers' compensation helps ensure businesses won't be financially crippled by costly disputes, but can still address and correct the issue at hand. Providing workers' compensation does not always guarantee an employee won't sue for injuries sustained on the job, because there are specific instances that permit a worker bringing his or her case to court.
A workers’ comp policy should be tailored to the risks of the small business that it covers. For example, running a manufacturing plant would have more risks than working in a small office setting. In turn, the price of the policy will also match the risk. The National Council on Compensation Insurance (NCCI) identified approximately 700 job types broken out into “class codes” which are used to help determine coverage cost.
General (or business) liability insurance covers third parties who experience harm to themselves or their property because of something you or your workers did or failed to do. General liability insurance is not legally required, but is highly recommended. This type of insurance covers the cost of claims against a small business including:
• Third party bodily injury
• Third party property damage
• Advertising injury
• Reputation harm-covers the costs to resolve claims of libel or slander against your business
• Helps cover costs for legal teams to represent your small business
• Witness fees • Evidence costs
• Judgements or settlements
General liability insurance can be sold separately or bundled into a businessowners policy (BOP). A popular bundle includes general liability, property coverage and business interruption insurance, but each program can be customized to the specific needs of a small business