Understanding Employers’ Liability Insurance

As a business owner, you know you need insurance, but the tricky part is knowing the type of insurance you need for your business. Do you need employer’s liability insurance or a different type of insurance? What is employer’s liability insurance, anyway?

This article covers the employer liability insurance definition, how it works, factors that affect the cost, how to choose the right type of insurance and more. You want to get the right type of insurance for your specific situation and business type.

What Is Employers’ Liability Insurance? 

What is employer liability insurance, exactly, and what does employers’ liability insurance cover? As a business owner, employer’s liability insurance is a type of insurance that helps pay for any costs related to employee job-related injuries or illnesses. It can also help protect employers from employees who file lawsuits. 

You might wonder how that differs from workers’ compensation, because workers’ compensation offers financial relief for the employer and employee in the case of injuries or illness. However, if an employee believes that workers’ compensation doesn’t cover all of their expenses, they can pursue employers’ liability insurance for the pain and suffering the incident caused. In short, consider employers liability coverage as added protection, for items that fall outside workers’ compensation jurisdiction.

How Employers’ Liability Insurance Works

You can purchase an employers’ liability coverage with workers’ compensation. When you purchase workers’ compensation coverage, you can opt to protect your business from claims from additional damages and compensation. So, what is employers’ liability insurance versus workers’ compensation?

There are two parts of workers’ compensation: 

• Part One: The main part and purpose ensures that injured workers receive medical care and benefits when injured on the job and cannot work. 
• Part Two: Part two is employers’ liability insurance, which protects you when employees follow a lawsuit following accidents not covered by state statutory benefits.

Claims can come from third-party action, loss of consortium, dual-capacity suits, or consequential body injury, and employers’ liability coverage may help protect you in these instances. 

• Consequential body injury: Just as it sounds, consequential body injury involves body injuries that occur and which link to the original accident. For example, a spouse might suffer a stroke as a result of the stress of taking care of an injured loved one and that might qualify as a consequential body injury.
• Dual-capacity suit: Dual-capacity suits occur when an employer and employee have more than one relationship. In other words, if an employee purchases and becomes injured by a product that their employer makes, this can occur.
• Loss of consortium: Loss of consortium refers to loss in another way. An employee’s spouse might sue you if they lost their family relationship due to your employee being killed on the job or injured.
• Third-party action: Employees might sue you through a third party, such as a manufacturer of a piece of machinery you use on the job. The manufacturer could sue you, the employer, because they believe you were negligent.

Generally, the steps for getting employers’ liability insurance to protect your business can be quite simple. Choose your insurance company, click “get a quote,” answer a series of questions, and purchase your policy. 

What’s employers’ liability insurance versus general liability, by the way? General liability insurance covers a business from outside claims, not from employee-related negligence. Employers’ liability insurance is for injured workers.

Factors that Affect the Cost of Employers’ Liability Insurance 

Several factors might affect the cost of employers’ liability insurance, including the following: 

• Business size and industry: The size of your business and the types of business risk may affect your costs. Larger businesses often require more coverage because of their complexity; smaller businesses may face a decreased cost, depending on revenue, total assets, and more factors. 
• Claim history: The claims you’ve claimed before affect your costs. All insurance companies will publish a different price after you’ve made claims, and they may differ from insurance company to insurance company.
• Location: Neighborhood location can affect the cost of employer’s liability insurance — or any type of insurance, for that matter. For example, if your business exists in a rougher area, paying for insurance may cost you more.
• Coverage limits and deductibles: A coverage limit refers to the maximum amount your policy pays toward a covered loss. Generally, the higher coverage you purchase, the more you’ll pay for your premium, or the payment you make each month. The deductible is the amount you pay for covered health care services before your insurance plan kicks in and covers the rest. Higher deductibles may result in a lower premium than policies with lower deductibles.
• Risk management practices: Risk management involves identifying and controlling organizational operations threats. How well you manage these risks can determine the cost of your employers liability coverage.

Choosing the Right Employers’ Liability Insurance

Choosing the right employees liability insurance doesn’t have to be complicated. Even so, there are a few steps you can take to evaluate and choose the right employer’s liability insurance for you. 

Evaluate the business’s coverage needs 

First, what does your business need? What type of coverage do you think you might require? Think about your business in terms of risk. What types of accidents, lawsuits or natural disasters might befall your business?

It’s important to note that it’s normal not to know what you need right off the bat. If you’re not sure, that’s where an insurance agent can help you find the best employers’ liability coverage. 

Compare quotes from multiple providers 

Don’t just stop at one. Get quotes from multiple providers to help you identify the amount of coverage you want and the amount you want to spend on your coverage. You can choose a handful of providers based on experience in the market, customer service excellence, and positive reviews. 

Check the financial stability and reputation of the provider 

As mentioned, you want to consider the provider’s experience and customer service reviews. You can also check the insurance provider’s financial stability. 

Five major agencies rate insurance companies regularly. You can register with them to read their ratings. Consider accessing AM Best Company, Demotech, Fitch Ratings, Moody’s Investor Service or Standard and Poor’s Corporation.

Each company looks at various characteristics of insurance companies, such as financial leverage, management, performance, and other factors. Each rating agency analyzes and backs its rating based on specific criteria.

For example, AM Best’s financial strength rating is A++ for State Farm Group, State Farm Mutual Automobile Insurance Company, State Farm Fire and Casualty Company, and State Farm County Mutual Insurance Company of Texas.

Understand the policy terms and conditions 

It’s important to understand your employment liabilities insurance policy terms and conditions. Insurance conditions outline all the information you need to know about your insurance policy. For example, it may outline what you, as an insured party, should do in the event of a loss. 

Note that employers’ liability coverage doesn’t cover every situation, such as criminal acts or fraud. Ask questions about anything you don’t understand, noting that insurance policies are legal documents, so you’ll see lots of specialized and legal terms, possibly making it difficult to understand.

Seek advice from insurance experts 

Insurance experts can give you guidance, so don’t assume that you’re alone in this situation. Ask the insurance company you land on for their suggestions about the type of insurance that will fit your business. 

Conclusion 

So, who is exempt from employers’ liability insurance? In most states, employers liability insurance will be included as part of your workers’ compensation coverage. But if you live in North Dakota, Ohio, Washington and Wyoming, you must buy separate coverage.

Do your research, know exactly what to expect, and how to ensure you’re protected with employers liability coverage.

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