11 Things to Know About Self-Employed Workers’ Comp Insurance

Workmans’ comp insurance is one of the few legal protections employees have against their employers.

These policies allow them legal recourse and a steady income if they suffer an injury while on the clock.

Many gig workers assume that they also sacrificed workmans’ comp policies when they gave up that “employee” title.

However, that’s not true — self-employed workers can opt-in to similar policies to protect themselves if they get injured at work.

Here are 11 things you need to know about self-employed workers’ comp insurance.

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1. What Is Self-Employed Workers’ Comp Insurance?

Of the 2.4 million work-related injuries that occurred in the U.S. in 2019, some 888,220 (or 37%) forced workers to miss shifts.

An on-the-job injury could put you out of commission for weeks or months. And if you’re a 1099 employee instead of a full-time W-2 employee, you’d be stranded without any income.

Unless you have your own workers’ comp policy.

Self-employed workers’ compensation insurance is an optional — yet often required — insurance policy for workers without an employer.

This includes anyone who acts as their own boss:

• Sole proprietors
• Small business owners with no employees
• Gig workers

With self-employed workers’ comp coverage, your policy would pay for related medical expenses and lost wages until you recover and return to work.

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2. What Types of Injuries Does It Cover?

 

Somewhere in the gray area of workers’ compensation is the “when” question — when are you actually eligible to file a claim and receive benefits?

To clarify, these policies kick in when you suffer an injury or illness while performing your usual job duties. This also includes flare-ups of previous conditions or reinjuries.

For example, suffering a concussion or spraining a knee that’s previously required ACL surgery would count as a work-related injury if it happened on the clock. Meanwhile, falling down the stairs at home would not.

Here are some examples of incidents covered by workers’ comp:

• Slipping on a wet floor in the office
• Pulling your back while unloading a truck
• Being involved in a motor vehicle accident while driving to a job site
• Falling through a weak floor
• Getting electrocuted
• Dropping a heavy tool on your foot
• Suffering chemical or electrical burns

Once you file an injury claim with your insurance provider, you may be entitled to benefits that cover the following:

Lost Wages

Self-employed workers’ comp will cover a portion of your typical weekly income until you can return to the job.

Medical Expenses

We mean anything medical-related and linked to the injury or illness by “medical expenses.”

That includes emergency room visits, appointments with specialists, prescription medications, surgeries, and even physical therapy.

Disability

For injuries that leave you either temporarily or permanently disabled, you need workers’ compensation payouts to help you maintain a steady income as you heal.

Death and Funeral

If you suffer a fatal work-related injury, these policies may also cover funeral and burial costs and death benefits for your dependents.

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3. Is It Required?

No! There’s no definitive rule saying that you need workers’ comp coverage as a self-employed individual.

Most U.S. states require businesses with employees to have workers’ comp policies, but independent contractors and sole proprietors are standard exemptions to these state laws.

However, while you may not be required to carry workers’ compensation insurance, these policies come in handy for a few reasons:

Many Clients Will Ask For One

Not having your own workers’ comp policy can be a red flag to reputable general contractors looking to hire subcontractors for their projects.

Why?

Because you become a liability.

If you suffer a work-related injury, the general contractor may legally have to foot the bill for your lost wages and medical expenses as you recuperate.

That’s why some GCs will refuse to sign a contract unless you confirm that you have your own workers’ comp policy (with a certificate of insurance).

Note: In some states, subcontractors are eligible for coverage under the general contractor’s policy.

Health Insurance Isn’t Enough

One question we often hear is, “Why do I need a workers’ comp policy if I already have regular health insurance?”

The answer is simple:

Most health insurance policies won’t cover work-related injuries, forcing you to pay for your medical bills out-of-pocket. And, if by some miracle they don’t exclude work injuries, they’ll only cover the medical expenses — not lost wages.

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4. What Are the Alternatives?

If an on-the-job injury puts you out of work and you don’t have workers’ comp insurance, you do have some other options:

Legal Recourse

The first option is attempting to hold the negligent party — your GC or even another subcontractor — responsible by filing a lawsuit.

Keep in mind the average personal injury claim takes 2–3 years to settle. And, a judge can decide to dismiss your lawsuit before it ever sees the light of day.

Paying Out of Pocket

The other alternative also happens to be the most expensive. You have the option to cover your work-related medical bills 100% out-of-pocket.

Of course, your emergency room visit could cost you upwards of $3,000, and you won’t receive payment for lost wages.

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5. When Is It Most Useful?

Any freelancer or subcontractor can invest in a workers’ comp policy.

But based on the odds of actually filing a claim, these plans are most useful for those in high-risk industries where physical labor is the norm:

• Roofing
• Cleaning
• Housekeeping
• Flooring
• Electric
• Plumbing
• Truck driving
• Masonry

Are you still weighing the pros and cons of self-employed workers’ comp?

Then, ask yourself how common slips and falls, falling objects, live wires, motor vehicle accidents, heavy machinery, chemicals, water, or fire are in your day-to-day duties.

There’s your answer!

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6. How Do You Get Workers’ Comp Insurance as a Self-Employed Person?

Being a solopreneur means you’re responsible for purchasing all of your business insurance policies. That includes general liability insurance, commercial auto insurance, and self-employed workers’ comp.

To purchase one of these policies from an outside provider, you can contact an insurance company or insurance carrier to request a quote.

Or, you could call one of their insurance agents or representatives directly.

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7. How Much Does It Cost?

That depends on quite a few factors. Generally, you should expect to pay somewhere around $20–$50/month for a self-employed workers’ comp policy.

Your insurance company will calculate your monthly premiums by considering these factors:

Job Classification

Many insurance providers lean on the NCCI’s classification codes to gauge the risk of work-related injury by learning about the day-to-day duties in the role.

For example, working in fireplace construction (5022) carries a much greater chance of physical injury than newspaper proofreading (8810).

The higher the risk, the higher your premium!

Average Annual Payroll

Insurance providers also factor your total payroll into the mix. To do that, each state assigns a base rate on a per-$100 basis for each classification code, then multiplies that by your total payroll.

So if you earn $70,000 per year with a classification rate of $3 per $100, you could owe an annual $2,100 premium. But, of course, the more income you earn, the more you should expect to pay!

Your Claims History

The final factor in your premium cost is your claims history, sometimes called the experience modification rate.

Have you ever filed a workman’s comp claim in the past? If so, insurance carriers may consider you a bigger financial risk to insure, thus increasing your monthly premium rate.

Note: You may have to pay your insurer even more at the end of the year if you underestimated your payroll or earnings.

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8. What Is a Ghost Policy?

A ghost policy is a popular choice for independent contractors who don’t legally need a workers’ comp policy to do their job but need it to secure a particular contract.

The catch-22 is those ghost policies don’t actually provide any sort of coverage. Instead, a solopreneur can pay the monthly premiums and receive a certificate of insurance proving they have workers’ comp coverage.

These policies allow subcontractors to meet a general contractor’s workers’ comp coverage requirement while paying the minimum premium.

Unfortunately, the benefits end there.

Ghost policies exclude the business owner, who is you if you’re self-employed.

In other words, you won’t receive medical or income benefits if you suffer a work-related injury under this policy.

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9. Who’s Liable If You Get Hurt While Working?

The question of who’s responsible for covering your medical costs and lost wages typically comes down to fault and negligence. Who’s to blame for your injury and missed workdays?

Your workers’ compensation policy will likely cover any accidental or unintentional injuries or illnesses caused while performing routine work tasks.

On the other side of the coin, most insurance providers will find you liable for (and won’t cover) these incidents:

Self-Inflicted Injuries

If you intentionally cause your own work-related injury (i.e., “accidentally” cutting your leg with a table saw), your policy won’t cover your claim.

Misconduct-Related Injuries

Clear misconduct will also leave you responsible for your own medical bills.

For example, if you operate a forklift while unlicensed and end up injured, you won’t be covered.

Injuries Caused by Negligence

Any careless mistake would fall under the “negligence” umbrella.

For example, if you ignore your general contractor’s request to wear a hard hat on the worksite, and then a rock falls onto your head and gives you a concussion, that’s negligence.

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10. How Do You Get the Benefits If You Do Get Hurt?

 

The claim-filing process can be tedious.

But that’s only because your insurance carrier wants to verify that you’re eligible for benefits and receive what’s rightfully yours.

Here’s how the process normally works:

1. Call your self-employed workers’ comp provider or fill out a form on their website.
2. Include as much relevant detail, such as the date and time of the injury and any medical files.
3. Discuss your claim with the insurance company and claims adjusters.
4. The provider will investigate your claims.
5. Wait for your insurer to approve or deny the claim.

Once your insurer approves your claim, you’ll begin receiving benefits until a medical professional approves you to return to work.

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11. How Much Can You Claim?

There’s no exact, predetermined limit.

However, your total workers’ compensation claim amount will depend on several factors:

The Severity of Your Injury

A sprained finger that can be splinted at an urgent care clinic won’t lead to hefty medical bills. However, if you lose a finger in a construction accident or suffer a severe head injury at work, your medical bills will be much higher.

How Long You’re Out of Work

Your workers’ compensation coverage includes wages for each day of work you miss. As the days turn into weeks and months, you’ll receive more.

Your Typical Weekly Pay

Your insurance provider will base your lost wage reimbursement on your usual income. A construction industry professional earning about $2,000 per week will receive more than a part-time house cleaner pulling in $500.

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Conclusion

While it’s not mandatory, self-employed workers’ comp insurance is a great investment for anyone who serves as their own boss, especially in high-risk industries.

It’s one of those investments that many shrug off, assuming they don’t need it, and then face regret when they become injured on the job.

As a self-employed worker, an Alliance of Gig Workers membership is an incredible way to secure financial and legal benefits. We offer free student loan analysis, unlimited financial coaching, legal assistance, and more!