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How Much Does Workers Compensation Insurance Cost?

How Much Does Workers Compensation Insurance Cost?

As a business owner, you already have a lot of things on your plate. You must worry about keeping your customers content, running your daily business operations, and budgeting and balancing your finances. The last thing you want to worry about is having to pay for injuries caused to your employees due to a workplace accident.

Many businesses, especially in states that don’t require workers’ comp insurance, may avoid purchasing the policy because they are concerned about the workers’ compensation insurance cost. So just how much is this policy, and how do insurers come up with their premium figures? Continue reading below to learn more about the importance of workers’ compensation insurance and who you can reach out to for an affordable policy with excellent coverages.

What Is Workers Compensation?

Workers compensation, also known as workers comp or works comp, is a coverage that provides wage and medical benefits for workers who get hurt on the job. Depending on the state of your business, it may be a requirement to have workers’ compensation coverage. This coverage also helps pay death benefits to the family of an employee who dies on the job.

Workers Compensation Insurance Cost

Before we can get into how much workers’ compensation insurance costs, there are a few factors we must go over. Most workers’ compensation insurance companies determine the cost of your workers’ comp policy by looking at the class of your business.


These companies class your business based on your industry and the level of risk that comes with working in those industries. For example, businesses that handle explosives or construction types of companies are at higher risk than a bakery or a retail stores. The higher the risk, the more expensive the policy.


The more employees you have, the more expensive the policy will be. This is because your annual payroll is something these insurance companies use to rate your policy. When shopping for your workers’ compensation policy, be sure to have this information readily available, as it will significantly impact your rate.

Claims History

With all types of insurance policies, the insurer will want to look into any previous claims. Multiple claims within a short amount of time is a huge red flag to workers comp insurers. Not only will the number of claims matter, but the severity of the claim can impact the cost.

State Laws

As mentioned earlier, depending on the state where you run your business, you may or may not need to purchase workers’ compensation coverage. Even if your state does not have it as a requirement, you may still want to look into a workers’ comp policy. In the event that your employee gets hurt while on the job, you don’t want to have to pay for that out of your own pocket.

Employee Job Classifications

Most states set their workers’ comp rates based on what the National Council on Compensation Insurance, also known as the NCCI states as the guidance. This company holds over seven hundred class codes and each of these codes describes the job’s level of risk and how much a business should expect to pay for their workers’ compensation coverage.

Examples of a few workers’ comp classification codes:

  • Retail and sales person for grocery, tea, or coffee: code 8017
  • HVAC: code 5537
  • Landscaping: code 0042
  • Plumbing: code 5183

Some businesses may only have one class code, whereas others may have several different codes. For example, a carpentry business may have a class code of 5403, but they also have codes for different parts of their business. Their sales and clerical employees have a class code of 8810.

When shopping around for your workers’ compensation coverage, you will want to make sure you partner with a reputable insurance agent who can properly classify your business. If you don’t, there is a chance you could be over or underpaying for your policy.

Experience Mod

An experience mod, short for experience modification factor, is a credit applied to your premium based on your past history of claims. Most businesses receive this experience mod number after being in business for at least three years.

The experience mod is based on a 1.0 scale. If your business is under 1.0, your company has fewer claims and represents a safe workplace. As you guessed, anything over 1.0 means a business has many claims and is, therefore, more of a risk.

Once your insurer figures out your experience mod number, they will either apply a discount or an additional charge to your policy. This is not an optional factor; this is mandatory for all businesses.

Experience Mods for Newer Businesses

Companies that have not been in business for at least three years don’t have an experience mod. This means that they will most likely have higher premiums for at least the first few years of being in business.

Once the company reaches its third year in business, it can then have its policy reevaluated for its experience mod factor. Granted, if they receive a score below 1.0, they can then expect to receive a discount on their policy. On the other hand, if they have claims during this three-year period, they can expect to have an increase in their premium.

How Are Workers’ Comp Premiums Calculated?

Workers’ compensation insurers use a specific rate for every $100 of your company’s payroll to price your policy premiums.

Three main criteria used to decide your workers’ comp premiums:

  • Classification rate (type of work done by your employees)
  • Payroll (per every $100)
  • The company’s experience modification factor

It is essential to add that the state where you conduct business plays a vital role in your premiums. For example, per every $100 of your covered payroll, you can expect to pay around $0.60 in Texas, whereas in Alaska, its about $2.30.

The formula to figure out your premium rate is:

  • Classification Rate x Experience Modification Factor x (Payroll/100)

Most states set their workers’ comp rates based on guidance set out by the NCCI.

What Does Workers’ Compensation Cover?

As mentioned earlier, workers’ compensation covers for the medical expenses related to an on the job injury or illness. To further explain, this insurance policy covers your employees’ cost of immediate care, such as an emergency room visit or an ambulance ride.

Other medical expenses covered under workers’ compensation:

  • Hospital stays
  • Medical bills
  • Medication
  • Surgical procedures
  • Physical therapy

If your employee requires ongoing care, workers’ compensation will take care of that as long as it is a covered loss.

Lost Wages

If your employee has to miss work due to their injury, your business can use workers’ compensation coverage to pay for part of their lost wages while they are out recovering from their injuries. The percentage that the policy will pay depends on the terms and conditions of your workers’ compensation policy.

Lawsuits Related to the Injury or Illness

In the event that your employee assumes that your negligence caused their injury, they may try to sue you. For example, if you own a restaurant and your chef suffers intense third-degree burns while trying to put out a fire, they can come after you if you did not provide them with adequate training on handling that type of situation.

If the case goes to court and the jury finds your business responsible for the injuries, your workers’ compensation will take care of that on your behalf. Your insurance policy provides you with coverage for court costs, attorney’s fees, and any settlements or judgments.

Fatal Injury Compensation

As mentioned earlier, this policy also covers compensation in the event that your employee dies due to a job-related injury or death. This will pay for the employee’s funeral expenses and an additional benefit to take care of the deceased’s children and spouse.

What Is Not Covered under Workers’ Compensation Coverage?

There are a few instances where workers’ compensation won’t pay for your employee’s injuries or illness. For example, if your employee was under the influence of any drugs or alcohol at the time of the accident, the claim will most likely end in a denial. This is because there is no way to tell if the accident happened because of your employees’ inattention or because of an actual workplace accident.

Other excluded workers’ compensation claims:

  • OSHA fines
  • Injuries claimed after being laid off or fired
  • Independent contractor injuries
  • Wages for a replacement worker

If your employee sustains an injury due to them violating company policy rules, their injuries are not covered under the workers’ compensation coverage. If these types of employees try to sue your company, you can count on your workers’ compensation coverage to provide you with legal counsel assistance.

Where to Get Workers’ Compensation Insurance

You can purchase workers’ compensation in two main ways: a private insurance company or a state-funded insurance program. Depending on your business location, you may only have one option over the other, or you may be able to choose whichever one is best for you.

Going through a privately owned company will most likely yield you more coverage and better options to fit the needs of your business.

How to Find the Right Private Workers’ Compensation Policy

Several different insurers are available for you to seek quotes from, but it is important to note that no two insurers are the same. Each company has its own underwriting rules and rates that they offer.

When looking for the right company to partner with, be sure to check out their reviews on third-party websites. You can use resources such as the Better Business Bureau or Google Reviews to see what other business owners liked or did not like about working with a particular company.

How to Reduce Workers Comp Costs

Workers’ compensation insurance policies can be very expensive, especially if you are a newer business. There is no need to worry, though; there are several different ways you can reduce the cost of your policy.

Property Upkeep

When you ensure that the outside and inside perimeter of your business are well kept, you reduce the chances of illness, injuries, or accidents. It would be best if you made sure to keep the building up to date with building maintenance.

Routine building inspections can help you catch a potential problem early on before someone gets hurt or sick. Ensuring that the building’s air ducts are well maintained will also reduce the risk of sickness.

Adequate Employee Training

Teaching your employees how to perform their job tasks correctly reduces the risk of injuries or fatal accidents. Make sure that they also know how to identify hazards and report them properly.

Proper Equipment 

It is crucial to give your employees the most up-to-date protective equipment they need to stay safe on the job. If you don’t keep up with the proper protective equipment for your employees, there is a chance that they could try to sue you for not providing them with what they need to stay safe while at work.

Affordable Workers Compensation Insurance

Purchasing a workers’ compensation insurance policy, regardless of whether your state mandates it or not, will provide you with additional peace of mind. If your employee gets sick or hurt while on the job, you can rest assured that you have a policy to handle all of that on your behalf.

Because there are so many insurers out in the market today, it might be hard to find the right insurer with reasonable workers’ compensation insurance costs. Contact us when you are ready to see how affordable your workers’ comp insurance policy will be. Our team is prepared to answer any questions or concerns you may have.

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