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Workers’ compensation insurance vs. disability benefits: What’s the difference?

Small business owners know employees can become sick or injured on the job. Workers' compensation and disability insurance are 2 options to safeguard employees. But they’re not the same type of coverage. So, how does workers’ compensation compare to disability insurance for small business owners? Let’s find out.

Workers’ comp vs. disability insurance: The key difference

When a worker is too sick or injured to work, which will pay: workers’ compensation or disability?

The short answer is that they both can help cover costs for treating and rehabilitating the employee. While disability can provide wage replacement for employees, workers’ comp includes payments for medical bills, death benefits, and legal protection for the business from work injuries.

The key difference is this: Workers’ comp covers workplace accidents, injuries, and illnesses only, while disability insurance can cover non-work-related incidents.

How workers’ compensation insurance works

Most states compel employers to provide workers' compensation insurance. It protects the employee, but it’s also small business insurance protection for your company.

For example, suppose a worker has an accident on the job and must receive medical treatment and miss work for some time. In that case, workers' comp pays for medical bills, treatment, and other expenses and compensates the employee for lost wages.

For small business owners, a workers’ compensation policy includes several benefits:

  • Medical expenses for immediate triage, ongoing treatment, and rehabilitation
  • Lost wages, so the employee isn't forced to return to work before recovering fully
  • Legal and financial protection for the employer against potential employee lawsuits
  • Death benefits for the employee’s survivors in severe cases
  • Retraining if the employee can return to work but in a different field or role
  • Permanent injury if the employee becomes fully disabled and no longer able to work

Employees have a legal right to know about their coverage in the workplace. Small business employers are obligated to provide claim forms and information about the policy if an injured worker needs to submit a workers’ compensation claim.

How disability insurance works

Disability insurance offers weekly wage benefits. It’s like having paycheck insurance for the employee if an accidental injury or illness prevents them from working. However, it works differently than workers’ comp. With disability insurance, the injury doesn’t have to be work-related. The only eligibility requirement is that an employee must be unable to do their job as determined by a medical professional.

Disability insurance can offer short-term disability benefits and long-term disability benefits from up to 2 years to decades. It’s a coverage option that you can offer your employees. However, policies are also available for employees to buy through private insurers.

Many employees value their disability insurance if a car accident or a heart attack prevents them from working temporarily. They know they will receive an income while they recover, up to the limits on the policy. In contrast, workers' comp would not cover either of these scenarios unless a work-related injury caused the medical condition.

What do workers’ comp vs. disability insurance plans cover?

Workers' comp policies cover more financial aspects than a disability policy. Disability insurance is strictly for income replacement. The policy does not include medical treatment or continued care since that can overlap with a person’s health insurance. An injured employee also cannot collect both workers’ comp and disability at the same time.

Benefit Workers' Comp Disability
When are you covered? On the job injury or illness Anywhere (doesn’t have to be work-related)
Who pays the premium? Employer Employee
Pays for medical treatment and rehabilitation Yes No
Provides lost wage income Yes Yes
Includes death benefits Yes No
Protects the business Yes No
Pays for legal fees Yes No
Required by law Yes (in most states) No

Another significant difference is that workers’ compensation benefits are typically required by state law. On the other hand, disability insurance is an optional protection determined by the employee.

Occasionally, employees face a situation when they cannot return to their former position but can still work in a different role. In those cases, workers' compensation insurance may cover costs for job retraining, but disability insurance would not.

If the employee suffers an accident or illness that leads to a permanent disability, some workers’ comp plans continue payments until Social Security Disability Insurance (SSDI) begins. Depending on how the disability insurance policy is structured, the insurance company may also cover periods of extended disability.

Which is better: Workers’ comp or disability insurance?

From the perspective of a small business owner, workers’ comp benefits are better. Policies have greater protections for employers but can also have medical benefits to cover medical expenses and other workplace injury-related costs for the employee.

Disability insurance benefits are geared more towards employees. It's excellent coverage to offer as part of your company’s benefits package. Employees typically pay premiums out of their own pocket. Policies can provide income-replacement protection to the employee if they cannot do their job due to a medical circumstance (even if it isn’t work-related).

How to get affordable workers’ comp insurance for your business

Huckleberry is your small business partner. We help companies find affordable workers’ compensation coverage in minutes online.

Gone are the days of in-person appointments with an insurance carrier, filling out mountains of paperwork, and waiting for your policy to come in the mail. It takes less than five minutes to get a quote and enroll in coverage. You receive your policy immediately, even outside of regular business hours.

Huckleberry provides instant coverage and makes it easy to manage your policy online. Everything is digital and simple to navigate in the online portal, so you have fewer things to worry about.

Get a workers’ comp insurance quote online now and quickly receive the protection your business needs.

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