So you’re ready to purchase workers’ compensation for your business. Great! But when you got your first quote, you found yourself swimming in an ocean of jargony terms. To pull you to shore, we created a glossary of frequent (and confusing) workers’ comp terminology. With this guide in hand, you can decode your quote like a pro and choose the best policy for your business.
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1. Workers’ Compensation
What’s workers’ compensation in the first place?
Workers’ comp is an insurance program that protects you and your employees while on the job. If an employee is injured while working, workers’ comp covers the medical expenses and a portion of their lost wages. In exchange for the benefits provided, employees also have a limited ability to sue their employer for damages — protecting you in return. Why do you need it? For more info, check out our guide.
2. Carrier vs. Broker
To put it simply: carriers are insurance companies, brokers are people. Insurance companies create, price, and underwrite various insurance products. Since they “carry” the financial backing of an insurance policy, they are called “carriers.”
Brokers, or agents, are licensed to provide insurance advice and sell various insurance products on a company’s behalf. They are the middle man between you and the insurance company. You can file a claim through your broker, but your carrier will process, investigate, and pay your claim.
3. Expense Constant
You may have seen this on your quote and thought, “huh?” Here’s the skinny:
The expense constant is a fancy term for fixed administrative costs. When an insurance company calculates your premium, there are fixed costs that don’t vary by how much coverage you purchase, such as state fees associated with issuing a policy. Those insurance expenses are constant. (Hence the clever name.)
4. Quote Rate vs. Blended Rate
Most likely, your initial quote won’t be what you actually pay when you purchase the policy. Why’s that? When you receive your initial quote, or “quote rate,” the price doesn’t include any surcharges, taxes, discounts, or other adjustments made by the state or insurance company providing the policy.
If you choose to accept the quoted rate, the actual cost of your policy is your “blended rate,” which includes the fees, taxes, discounts or other adjustments blended in with your initial quoted price. So, your blended price could be lower or higher than the quoted price you initially received. Though this can seem frustrating at first, the objective of the blended rate is to combine all these fees with your regular premium payments. That way you don’t end up paying a lump sum at the end of your policy term.
5. Risk Class Code
As we all know, some jobs are riskier than others. For example, an accountant’s daily job isn’t as risky as, say, cleaning windows on the Empire State Building. Your insurance carrier will assign each of your employees a risk class code, based on the riskiness of his or her job. These codes help insurance companies determine the amount of coverage needed and therefore impacts the cost of your policy. In general, the riskier the job, the higher the premium range.
We hope you’ve found your sea legs. With this guide as your compass, you can navigate your way through the selection process and put the right policy in place to safeguard your employees and business.