Workers’ Compensation provides financial assistance to employees who have been injured on the job. The benefits assist with lost wages and medical expenses related to the injury and recovery. In addition, it protects employers from lawsuits. When an employee who has been injured on the job accepts workers’ compensation benefits, she forfeits the option to sue her employer.

Many people think Workers’ Compensation is part of the tax process and they’re automatically covered when they pay their employer taxes. That is not true – it’s offered as an insurance policy outside of the tax process.

Employers in most industries nationwide are required by state law to carry Workers’ Compensation policies. In some states, however, household employers are exempt from this requirement. To learn the employer obligations in your state, click here.

If it’s required in your state – or if you elect coverage – we advise you to first check with your homeowner’s insurance provider. You may already be covered. If not, you can usually get a quote and add a rider to your policy over the phone.

Why is Workers’ Compensation so important?

It is the law in many states. Families caught without it will be penalized. In addition, having a Workers’ Compensation policy in place when an employee is injured on the job can mean the difference between a manageable situation and a nightmare. Here are two true cases:

Case 1: An employee slipped on the front steps of her employer’s home and broke her ankle. Her health insurance company did not want to cover the medical bills; they wanted the expenses to be covered by Workers’ Compensation because she was injured on the job. The employee was away from work for quite some time during her recovery. Her employer had a Workers’ Compensation policy that paid her medical expenses and assisted with lost wages while she recovered. The family was also able to afford temporary help while she was away, as Workers’ Compensation was providing financial assistance to their permanent employee.

Case 2: A nanny sustained a back injury in a car accident while grocery shopping for her employer. Her employer did not have a Workers’ Compensation policy. The family chose to assist with her medical expenses and wages while she was away from work. In addition, the nanny’s husband notified the family that he was seeking the advice of an attorney for a potential lawsuit. After many weeks of frustration for both the employee and the family, the family decided to look for a new caregiver. They could no longer afford to go without childcare and could not afford to employ temporary help and assist their employee during her recovery. They made the decision to terminate her, and they are still fearful of a lawsuit. In this case, the employee is without a job and the family is without childcare – no one wins.

Like any insurance, Workers’ Compensation is not needed often. But when it is, it’s worth its weight in gold.