Workers’ Comp: Think Big and Save More with Large Deductibles
Few programs are more expensive for companies than workers’ compensation insurance. Though somewhat counter-intuitive, some employers are finding a more cost-effective solution in large-deductible workers comp plans.
What It Is
Large-deductible workers comp plans allow companies to partially self-insure workers’ compensation claims. The deductible paid by the business is much higher than usual and often ranges from $100,000 to $1,000,000.
How It Works
The insured sets up a loss fund earmarked for workers’ comp claims and reimburses the fund as deductibles are paid. The insurance company provides excess coverage for any loss above the agreed-upon deductible amount.
Claims processes are virtually identical to standard workers’ comp plans, and the insurance company pays the employee directly. The difference? The insured company reimburses the insurer up to the deductible amount.
Why It Works
Clearly, companies must possess the financial security necessary to pay the larger deductibles. Which begs the question, why would a company choose to pay a deductible that is so high that it often covers the entire cost of a claim? The answer is simple: drastically reduced premiums.
Companies that choose large-deductible workers comp plans typically pay more than $500,000 per year in premiums alone. By partially self-insuring, they are gambling on spending less on deductibles than they would on premiums.
This option isn’t for everyone. But a large company with financial security and budgeting savvy may just find that large deductibles are a cost-saving measure.