By Rich Best

In the realm of business insurance, Worker’s Compensation and Employer Liability Insurance are among the few compulsory coverages all states require of businesses. While the two work in concert to provide an umbrella of coverage that protects the business against liabilities arising from injuries or death of an employee, they provide two distinct forms of coverage. Together, they are critical to a business that could suffer severe financial hardship liabilities in case of a work-related injury or death.

Worker’s Compensation

Also referred to as Part One of the employer’s liability coverage, Worker’s Compensation covers employers for liabilities arising from employee injuries or illness suffered from work-related duties. Generally, it guarantees employees a fixed amount of money to cover medical costs and a portion of lost income. In most cases, employees can receive as much as two/thirds of their monthly salary for a period of time if disabled. Other medical expenses, such as vocational rehabilitation and training, are covered as well. If death results, the coverage provides benefits for the employee’s survivor.

In almost all cases, Worker’s Compensation is the only available remedy for employees seeking reimbursement for medical costs and lost wages resulting from work-related injuries or illness. As a condition of employment, employees accept Worker’s Compensation as the only means of recovering costs or lost wages. Essentially, they waive any rights to sue or hold employers liable in civil court.

Employer’s Liability Insurance

This broader coverage, known as Part Two, is designed to shield the business against legal liability arising from employee death or injury. This includes employees, family members and any third party who might seek a legal remedy. This remedy is only available if it can be determined that the injury or death resulted from employer negligence. Whereas Worker’s Compensation is, essentially a “no fault” remedy, Employer’s Liability Insurance requires that negligence be proven in order for employees or their families to collect any benefits.

Employers’ Liability Insurance is separate from a business’ commercial or public liability insurance, which covers the employer for claims made against the company by third parties or the general public. Most states have established a specific limit of liability, with basic employer limits of $100,000 per bodily injury occurrence (for both injury and disease), and a $500,000 aggregate limit for bodily injury and disease. So, whereas Worker’s Compensation Insurance coverage limits are mandated by the state, each employer can establish its own limit as long as it meets the minimum requirement.

The premium costs of both parts of employer liability coverage are determined using several factors, such as the type of business and the type of activities and work duties in which employees engage. Different duties and activities are assigned specific employee classifications, which are then rated by classification. The size of a company’s payroll and the amount of Employer Liability coverage needed are also determinants in premium costs.

For companies domiciled in states that allow the purchase of private insurance, it’s always best to shop around, as the different carriers will price any one of these factors differently into the total premium.

Rich Best has spent 28 years in the financial services industry, as an advisor, a managing partner, directors of training and marketing, and now as a consultant to the industry. Rich has written extensively on a broad range of personal finance topics and is published on several top financial sites.


The information provided is presented for general informational purposes only and does not constitute tax, legal or business advice. Any views expressed in this article may not necessarily be those of Nevada State Bank or its affiliates.