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Is Excluding Officers and Owners from Workers Compensation Insurance Coverage a Bad Idea?

In most states, businesses that have employees are required to provide workers compensation insurance for their employees. Executive officers and business owners, however, are usually not required to be included in the coverage, but can be if they so choose. While excluding officers and owners from a workers' compensation policy generally helps reduce the policy’s premiums, there are risks involved. Here are some of the reasons for excluding officers and owners.

Why a Business May Want to Exclude an Officer or Owner from Workers Compensation Insurance Coverage:

In short, excluding officers and owners reduces the cost of workers' compensation insurance. Since the insurer will not cover a claim for an excluded individual, there is not as much at risk and the company can charge less premium. This is the main benefit of excluding officers and owners from coverage -- a business can save money on what it pays in premium. Here are some other reasons:

  • An owner cannot imagine filing a workers' compensation claim against their own company so why pay for something that will never be used?
  • The officer assumes that they will not get hurt as they are in charge. 
  • The owner believes that if they do get hurt on the job that their own personal health insurance policy will pay for any injuries they sustain.

If these assumptions were correct, excluding officers and owners from coverage would be an easy decision; however, let's look a little deeper into the reality of excluding officers and owners versus the assumptions frequently made.

The Risks of Excluding an Owner or Officer from Worker's Compensation Coverage:

Assuming that a business owner will not get hurt at work because they own the business is frankly naive. Anyone can get hurt regardless of title. Whether executives work behind a desk or with the team in the trenches, executives are subject to the same injuries and illness as everyone else, if not a little more. It is not uncommon for a business owner to have an employee's well-being in mind when, for example, they grab a heavy box from the admin to help, only to wrench their back. Or perhaps they take it upon themselves to shovel the snow from the walkway and fall on ice and slip a disc.

The business owner or officer may have personal health insurance to cover such an injury, but some health insurance policies may exclude coverage for work-related injuries as it is assumed that workers' compensation will pay for the treatment.  Even if there is coverage for the injury itself, worker's compensation also provides a percentage of an average weekly wage, up to maximum in disability payments. Unless you had a separate disability policy, this could put a dent in anyone's personal finances as well as a company's.

Workers' compensation insurance will also pay a death benefit to beneficiaries in a work-related accident so an additional layer of protection for the owners and officers who elect coverage.

For many officers and owners, the increase in risk that opting out of workers' compensation coverage provides isn’t worth the potential savings. Like all business decisions, the cost has to be weighed with the benefit. It is encouraged that an informed decision be made with the help of an independent commercial insurance agent who can run the cost for your business including and excluding owners and officers. An agent can also help a business navigate the required paperwork and ensure coverage is understood to protect the business's bottom line.

This material is for informational purposes only. All statements herein are subject to the provision, exclusions, and conditions of the applicable policy, state and federal laws.  For an actual description of all coverages, terms and conditions, please refer to the applicable insurance policy or check with your insurance professional.

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