Workers compensation insurance is a type of insurance that provides medical and wage benefits to employees who are injured or become ill as a direct result of their job. This coverage is mandated by each state, and the wage and medical benefits vary by state. Workers compensation is considered a social insurance because it relies on a social contract between management and labor, wherein exchange for purchasing workers’ compensation insurance, business owners are protected from civil suits from their workers who become injured on the job. Workers’ compensation insurance is purchased by businesses and is underwritten by insurance companies and, in some states, underwritten by publicly supported state funds.

Key features of workers compensation insurance include:

• Medical expenses: Workers compensation provides medical expenses, lost wages, and rehabilitation costs to employees who are injured or become ill “in the course and scope” of their job.

• Wage benefits: Workers compensation insurance gives employees wage benefits if they need time off to recover from a work-related injury or illness.

• Disability benefits: Workers compensation provides disability benefits to employees that have work-related injuries or illnesses.

• Death benefits: Workers compensation provides death benefits, like funeral costs, if a worker passes away in a work-related incident.

Workers compensation is a no-fault system, which means that injured or ill employees can receive compensation, but they give up their right to sue their employer. If a worker is not receiving benefits because the employer or insurance carrier is arguing that the injury is not job-related, that worker may be eligible for disability. All states, with a small number of exceptions, require businesses with employees who are not owners to purchase workers’ compensation coverage for those employees. Businesses that fail to provide workers’ compensation coverage can face severe and costly repercussions, including payment of claims out of pocket, fines and possible imprisonment, as well as possibly losing the right to conduct business in the state.