How Does Self-Insured Workers’ Compensation Work?

The federal government requires that most companies carry workers’ compensation insurance to protect their employees from on-the-job injuries, but some states allow self-insured workers’ compensation to meet this requirement. Here is an explanation of how this type of policy works and whether it is good for businesses.

What Is Self-Insurance?

Self-insurance is an alternative strategy to purchasing a traditional policy from an insurance provider. Instead of paying a monthly premium, companies instead save money to cover employee claims on their own. They accumulate enough savings to pay the medical bills of those injured at work and also the costs of going to court if the employees sue.

Is Self-Insurance a Good Idea?

Deciding whether to self-insure or purchase traditional workers’ compensation insurance depends on the level of risk your employees face. In general, experts only recommend self-insurance in industries that experience infrequent claims and that have enough capital on hand to pay for the following expenses:

  • Medical bills
  • Pain and suffering
  • Lost wages
  • Survivor benefits
  • Disability benefits

Self-insurance makes sense for businesses with a low risk of employee injury and large enough savings to cover them, should they occur. If you are interested in this alternative to traditional insurance, talk to your agent about the pros and cons of this type of coverage.