Virtually every employer is required to provide workers' compensation insurance for all employees.
But what do companies do for non-employee contractors who are injured while working for them? One solution is occupational accident insurance.
Occupational accident insurance (OAI) provides coverage for work-related injuries and death to employees and independent contractors not covered by workers’ compensation. OAI coverage is a type of accident insurance that is similar to workers' compensation, but not as comprehensive.
Why are some workers not covered by workers' compensation? One reason is that some states enable employers to opt-out of their state’s workers' compensation program. However, employers still have a legal obligation to cover their employees in the event of injury or death on the job.
Second, contractors who work for a company but are not actual employees are typically not covered by workers' compensation. State laws do not require employers to purchase coverage for independent contractors.
OAI can also be used in states that enable employers to assume part of the workers' compensation risk themselves.
OAI coverage is typically divided into three main components:
- Money to pay for medical expenses resulting from a single accident.
- Accidental death and dismemberment benefits, which are usually limited to a multiple of the employee’s or contractor’s annual salary.
- Disability benefits.
Some policies offer a single combined limit and lump sum payment instead of separate benefits for the three components. These three components are also accompanied by a per-accident deductible amount and a maximum payable amount on an annual basis.
In some states, OAI is not an option for businesses to cover the potential injuries and illnesses of workers. That’s because some states do not allow businesses to meet their worker's compensation obligations through OAI.
In states where businesses can use OAI, it typically costs half of what workers' compensation coverage does. OAI covers lost wages, medical expenses, and a death benefit up to the policy limit.
One area in which OAI offers less than workers' compensation is that it doesn’t cover legal expenses.
Most businesses opt for workers' compensation over OAI. Workers' compensation is regulated by states. It pays lost wages and all medical expenses.
Another advantage of workers' compensation is that for a claim to be paid out, the burden of proof lies with the worker, not the employer. That means the worker has to prove that an injury was caused on the job.
Also, workers' compensation laws do not allow injured workers to sue for pain and suffering or for punitive damages. Therefore, businesses are less likely to face a lawsuit. If they do, their worker's compensation coverage will pay legal fees.
There are no statutory limits on OAI. Therefore, an injured or ill person can sue for damages. What’s more, employers must prove that an employee’s injury is not work-related. That often requires money to investigate the employee’s claim and medical information.
In addition to the lower cost, OAI offers more flexibility than workers' compensation. Employers can choose among the following coverages to add to their OAI policy:
- Temporary total disability
- Permanent total disability
- Survivors benefit
- Accidental death benefit
- Accidental dismemberment
- Accident medical expenses
- Non-occupational accident benefit
- Hernia and hemorrhoid benefits
- Chiropractic benefits
- Passenger accident benefits
Additionally, OAI policies require you to determine:
- The liability limit per accident
- The deductible amount per accident
- The disability coverage level
- The death benefit level
OAI policies also offer contingent liability coverage. This provides coverage if an independent contractor claims to be an employee in order to receive workers’ compensation. Contingent liability covers the legal costs of this situation and compensates the employer for expenses if it is proven that the injured worker is an independent contractor, not an employee.
Trucking companies are big users of OAI. It allows them to provide benefits to owner-operators who are not employees.
The risk of accidents and injuries to truck drivers is higher than in most industries. Non-employee drivers are at a disadvantage because they are not covered by workers' compensation.
OAI is a good option for trucking companies because it helps attract independent drivers who would otherwise be concerned about having no coverage if injured while working for the firm.
OAI also protects employers in the event that an independent driver claims to be an employee who is eligible for workers' compensation benefits. Plus, having a coverage program reduces the chances of a lawsuit being filed by an independent operator.
The cost of OAI will vary by the insurance carrier. The premium amount will also depend on your industry, the number of workers, and your accident claims history. Policy attributes that will affect your cost include the deductible, the amount of coverage, and the policy limitations.
The biggest factor insurers will consider is the risks a policy will cover and the amount it will pay for an accident compared with the expenses likely to result from an accident. The greater the benefits provided, the more you will pay in premium.
Occupational accident policies for truckers with limits between $500,000 and $1 million can be found for between $60 and $160/per month per operator.
Potential buyers of OAI have more flexibility than what is offered with workers' compensation. You have more control and will have to determine whether it makes sense to pay a little more to cover certain potential risks.
Because of the complexity of OAI, you are advised to work with an independent insurance agent. Rates vary between carriers. Also, certain companies have more experience in certain fields.
The right independent agent can help you find the right company and policy to meet your needs and budget. Agents can also help you make decisions about the benefits you should include in your policy.
Jack Wolstenholm is the head of content at Breeze.
The information and content provided herein is for educational purposes only, and should not be considered legal, tax, investment, or financial advice, recommendation, or endorsement. Breeze does not guarantee the accuracy, completeness, reliability or usefulness of any testimonials, opinions, advice, product or service offers, or other information provided here by third parties. Individuals are encouraged to seek advice from their own tax or legal counsel.