Few people think about Workers’ Compensation (“WC”) insurance until it is needed. It is compulsory coverage required of most every employer for the benefit of most every employee. It is a trade-off that requires employers to provide unlimited work-related medical benefits to employees who are injured at work in exchange for eliminating liability to the employer from the employee’s allegation of negligence for the work-related injury or illness. WC provides three primary benefits: medical coverage, rehabilitation services, and loss of wages. Typically, the health and rehabilitation benefit are without limits with the goal to help put the injured/ill employee back to work as quickly as possible. However, the work wage loss is typically limited to a percentage of the gross wages, such as 2/3. Additionally, there is a cap on how much is ultimately to be paid, from a low of $478/week (Mississippi) to a high of $1,688/week (Iowa). Thirty-five states have a maximum of less than $1,000/week.
The only employee who is usually allowed to be removed from the WC mandate is the President or Executive Director of an organization. Since this person may be compensated at a high wage, it is common that the amount of work wage benefit provided under WC may prove to be woefully inadequate. If they are covered under a major medical plan, they really do not need 2 out of the 3 benefits that WC coverage provides. Therefore, it is likely a much better value for the President or Executive Director to obtain a stand-alone Disability Income (“DI”) policy. These policies protect the wage earner against loss of wages stemming from virtually any injury or illness, even if not work related. Typically, the maximum benefit allowable is capped at 60% of gross wages (before taxes). Since the premiums may be paid with after-tax dollars, the benefit will be received without further taxation, thereby preserving at least 90% of the wage earners income, assuming they are in the 30% tax bracket.
Additionally, DI policies provide for a fixed premium for the life of the policyholder and may be tailored to such benefit details as waiting period before payments begin, duration of the benefit period payout, and the amount of income to be insured. Most DI policies are portable and may be taken to other employment should the President/Ex. Dir. ever leave your mission.
The replacement of DI for WC for your Executive Director will reduce your WC premium and improve the overall benefit.
Latest posts by Brian H. Merriam, CPCU, ARM, AAI, President (see all)
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