Do Workers’ Comp Policies have Deductibles? A Guide for Business Owners

Workers' comp policies may or may not have deductibles, depending on the state. In states that do offer deductibles, employers pay a reduced workers’ comp premium in exchange for paying a specified amount toward each claim. 

What are deductibles in Workers’ Comp policies?

A deductible means that you, as a policyholder, agree to pay a specified amount (your deductible) out-of-pocket towards each claim before your insurance coverage kicks in. 

For example, if you have a deductible of $5,000 and a worker's injury claim is $20,000, you would be responsible for paying the first $5,000, while the insurance company covers the remaining $15,000.

Deductibles can vary widely, from as little as $100 to upwards of $10,000, largely depending on the laws of the state your business operates in.

‍What are the advantages of deductibles in Workers’ Comp policies? 

Keeps your premiums low 

By adopting a deductible, businesses share in the cost of claims. This not only directly reduces the amount the insurance company needs to pay out but also improves the business's loss history. 

A better loss history can lead to more favorable rates from the carrier, as it signals a lower risk to insure. For businesses, this can translate into significant savings, especially over the long term.

Lowers your experience modification rate (ExMod)

The experience modification rate, or ExMod, is an important factor in determining your Workers' Comp premiums. It reflects your company's claim history in comparison to other businesses in your industry. 

Typically, a higher frequency or severity of claims leads to an increased Ex Mod, which in turn results in higher premiums.

By incorporating a deductible into your Workers' Comp policy, you're taking on a portion of the claim cost. This can lead to a smaller recorded loss for each claim, since the insurance company is only covering the cost above the deductible. 

As a result, your business may see a less significant increase in the Ex Mod following a claim. Essentially, deductibles can act as a buffer, helping to stabilize or lessen the impact of claims on your insurance costs over time.

Incentivizes a safer workplace

While it's true that all Workers' Comp policies ultimately benefit from lower claim frequencies and severities, the presence of a deductible makes these benefits more immediate and tangible.

When a business opts for a deductible in their Workers' Comp policy, they agree to pay a certain amount out-of-pocket for each claim before insurance coverage begins. This immediate financial responsibility makes every potential claim more significant to the business's bottom line. 

As a result, business owners and managers are often more motivated to invest in and prioritize workplace safety, knowing that each accident avoided is a direct cost saving.

What are the different types of deductible plans? 

Guaranteed cost policies with small deductibles 

Guaranteed cost policies are the most common for businesses.  These may include a small deductible, typically ranging from $1,000 to $5,000. 

Note: In some states, guaranteed cost policies come with no deductible, providing straightforward coverage for the insured. 

High deductible plans 

High deductible plans are more commonly utilized by larger businesses such as nursing homes. These policies involve significantly higher premiums, often ranging from $300,000 to $500,000. 

With high deductible plans, the insured agrees to bear a substantial portion of the claim costs, often in the range of $100,000, before the insurance coverage comes into effect. This arrangement allows the insured to pay lower monthly premiums, effectively self-insuring a portion of the potential claim costs. 

While this approach is not as common as guaranteed cost policies, it provides a unique solution for larger organizations to manage their workers' compensation risk.

Are there states without deductibles?

Yes, there are states in which the carriers do not offer small deductibles. In these states, you would purchase a guaranteed cost policy, which means you don't need to worry about paying a deductible for workers' compensation claims. 

However, this may result in higher annual premiums since the insurer assumes all the risk associated with your workers' compensation benefits.

Get a Kickstand Quote

Our expert team is dedicated to guiding you through the insurance-buying process, ensuring you receive comprehensive coverage that aligns with your business objectives and budget. 

Start with Kickstand today by getting an instant quote for your workers’ comp policy, and propel your business forward with confidence, knowing your workforce is protected by a policy designed just for you.