Disability Insurance Vs. Workers' Compensation

I have often been asked by business owners:  

Instead of getting a disability policy, can't I just add myself onto my workers' compensation policy?

While it is possible to add yourself onto a workers' compensation policy, the benefits are not the same as a disability policy.

Was this paper cut work related?  

Here are some of the similarities:

• Both may pay medical bills if you are hurt
• Both may pay disability and lost wages
• Both may pay a portion of your lost income
• Both will cost you based on your current income

Here are some differences:

• Workers' Compensation only pays for on-the-job injuries
• Workers' Compensation will only pay at most 2/3 of your stated income
• Workers' Compensation may only pay based on your stated payroll (even if you take a draw or have other forms of compensation)
• Workers' Compensation is based on the rate for your specific class code and you pay per $100 of payroll.  Disability is based on many factors.

When does it make sense to add yourself to your workers' compensation?

• If you can't qualify or afford disability insurance
• If you are in a 'low risk' field such as computer programming and the rate per $100 is relatively affordable.  
• As an additional protection in case you get hurt on-the-job
• If you have an abnormally high deductible for your health insurance
• If you are prone to accidents

If you are truly worried about losing your income from getting hurt then nothing will suffice for a good disability policy.  Many people buy life insurance and feel like they have taken care of their family, but if have a bad accident and you don't die then your family can't collect.  

Don't forget that not all disability policies are created equal either.  Make sure to read the small print because in some policies you may not be able to collect if you are able to do any other job.  If you are a doctor, you aren't going to like it if the company stops paying because you can get a job as a barrista.  

Please note:

When employers make workers' compensation claims against themselves, it's a red flag for claims adjusters.  This is because it is easier for an employer to exaggerate a claim than an employee, so be ready to defend any over the top expenses for your medical treatment.  

Disclaimer:

This answer is not a substitute for professional legal advice. This answer does not create an insurance agent-client relationship, nor is it a solicitation to offer legal/insurance advice. If you ignore this warning and convey confidential information in a private message or comment, there is no duty to keep that information confidential or forego representation adverse to your interests. Seek the advice of a licensed insurance agent in the appropriate jurisdiction before taking any action that may affect your rights.  

How Insurance Helps Keep Your Business Going

Disability is important to many companies, especially one where the business owner is the main money maker. For example, a dentist or a doctor both may lose their practices if they were sick for six months. Many owners mistake Workers' Comp as a viable replacement, but workers' comp is only for on the job injuries or sicknesses.

If you come down with cancer and its not work related, then there is no coverage. under workers' comp. In addition, claims where an owner claims workers' comp against himself are looked at in greater scrutiny because there is more of a chance of fraud. Also, workers' comp only pays about 2/3 the wage you pay yourself. Many owners will pay themselves a low wage, but get most of their income from draws from company profits. Those draws won't be considered as part of the wage.

In addition, going without key coverages like workers' comp and liability insurance is a good way to get shut down as well. Workers' Comp is mandated by the state if you have employees, but many business owners tend to go with out it. If one is caught without it, your business could get shut down until you can prove you have it. Also, there is a fine for $1,000 per employee up to $100K.

Without the proper liability coverage, you can get sued once and lose everything on just paying legal bills. Insurance is the first defense from lawsuits. Even if you have an LLC to protect your personal assets, if the business is your main stream of income you could end up losing everything anyway.

Lastly, business income is a great way of protecting your company in case of a covered loss. Business Income is an important coverage that every company should have that can pay your lease, expenses, overhead, and even key employees in some cases. See my blog on business income for more information.