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Start Your Business Startup Basics

What is Workers' Compensation Insurance?

Two out of three Americans don't know what's covered by their disability insurance plans. . / Credit: Disabled worker image via Shutterstock

Workers' compensation is insurance for employees to protect them should they be injured on the job. The insurance covers things such as medical and rehabilitation costs, as well as any lost income resulting from the injury.

Workers' comp, which is paid for by the employer, also offers protection for employers. In exchange for the weekly benefits they receive should they be injured on the job, the terms of the insurance require that the employees give up their right to sue their employer for negligence.

An employee's dependents are also eligible for workers' compensation benefits should they be killed while working.

Each state sets its own worker's compensation laws.  Most require employers to have coverage as soon as they hire their first employee. The workers' compensation board in each state determines the cost of the insurance, factoring in such things as how risky the occupation is and how frequent those employees are injured, as well as the business’ safety history and whether health insurance is offered.

Texas is the only state without mandatory requirements for worker's compensation insurance.

Chad Brooks is a Chicago-based freelance business and technology writer who has worked in public relations and spent 10 years as a newspaper reporter. You can reach him at chadgbrooks@gmail.com or follow him on Twitter @cbrooks76.

Chad Brooks

Chad Brooks is a Chicago-based freelance writer who has nearly 15 years experience in the media business. A graduate of Indiana University, he spent nearly a decade as a staff reporter for the Daily Herald in suburban Chicago, covering a wide array of topics including, local and state government, crime, the legal system and education. Following his years at the newspaper Chad worked in public relations, helping promote small businesses throughout the U.S. Follow him on Twitter.