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Employer’s Liability Insurance: How Does it Work?

What Is an Employer’s Liability Insurance? 

It’s a policy that offers coverage for costs resulting from claims made by both current and former employees of an organization. It involves claims such as injuries, sickness, and death due to work-related activities.

Most worker’s compensation policies have employer’s liability insurance in their second part. Some people use the terms employer’s liability insurance and worker’s compensation interchangeably. However, there’s a difference. 

Generally, your employer’s liability insurance covers exclusions in your standard worker’s compensation insurance. Although worker’s compensation is a legal requirement in different states and is set using strict parameters, it doesn’t always offer adequate coverage.

How Do You Calculate Premiums for Employer’s Liability Insurance?

The calculations are done according to several patterns. One of the most important factors that underwriters consider is book rating, which is calculated using the base rate. Insurance experts determine the applicable base rate depending on the risk levels in a business or industry. 

Your claims history and your actions to mitigate risks in your organization are also considered when calculating premiums for your employer’s liability insurance. Additionally, the coverage you need and the number of employees are also crucial factors. 

 The more the number of employees, the higher the premiums payable.

Does that mean I can lower premiums for my policy?

Yes, you use several ways to lower the cost of maintaining your insurance policy. For example, if you have implemented a rational risk management policy in your firm, your insurer will offer favorable rates. 

Also, if you provide a safe working environment, initiate safety awareness campaigns, offer training, and have a history of few claims, your business will be perceived as less risky and hence lower premiums.

Should I Have an Employer’s Liability Insurance? 

If you are a business owner, then you are probably aware that your worker’s compensation policy can have two sections. If you don’t, keep reading to learn more.

The first part of your policy caters to expenses such as medical bills and an employee’s lost income after suffering injuries. The second part is known as the employer’s liability and offers protection against lawsuits by employees for more compensation.

Depending on where you live, the two provisions are included together, or you may be required to purchase them separately. If the employer’s liability insurance is included in your worker’s compensation policy, don’t write it off. Here are some reasons why you need it:

Third-Party Counter Lawsuits

If your employee uses a piece of equipment when working and gets injured, they may decide to sue you and the equipment’s manufacturer. The manufacturer may then sue you, claiming the incident was due to negligence at the workplace. Your employer’s liability insurance will compensate you for the expenses involved during such lawsuits.

Loss of Consortium

Your employee may not initiate legal proceedings against you after suffering work-related injuries. Usually, they cannot sue you if they are benefiting from your worker’s compensation insurance. However, their spouse has a legal right to sue you if they believe they have suffered due to their partner’s injuries.

Finally, your employees are entitled to compensation if they incur injuries while working in your firm. You can avoid such claims by providing a safe working environment and offering training on how to use various equipment safely.

Updated on April 25, 2020

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