Workers’ Compensation vs. Disability Insurance

Having a properly protected business is essential to running a successful operation. Even so, with so many types of insurance to consider, it gets overwhelming. While everyone wants to have best coverage for themselves and their employees, it’s important to know what you’re truly paying for. On that note, one of the biggest misconceptions when it comes to insurance is that disability and workers’ compensation are the same thing. We’re here to tell you that they are not. To take it even a step further, we’ll be examining the key differences between the two coverages and some considerations to help you choose the right protection.

Workers’ Compensation Explained

Workers’ compensation is an insurance coverage that is mandatory in every state in the US other than Texas. This benefit aims to help employees who suffer job-related injuries or illnesses. The main thing to remember is — the injury or illness must occur in the workplace or in relation to the job, in order for a workers’ compensation claim to be filed. The way it works is pretty simple. When a claim is filed, this insurance type helps the affected employee by covering medical costs, recovery costs, partial replacement of wages, and death benefits in severe cases. Additionally, the coverage protects the employee against any legal complications that may occur as a result of the claim.  Here are some of the other key features of workers’ compensation coverage:

  • Mandatory Insurance Type: As briefly discussed, almost every state in the US requires businesses with employees to carry workers’ compensation insurance. 
  • No-Fault System: When an injury or illness occurs, the coverage is provided no matter who is at fault for the occurrence. 
  • Includes Rehabilitation and Retraining: Most of the time, workers’ compensation will cover the costs of any rehabilitation or retraining that is necessary. Retraining or rehab may be necessary to help employees return to work. 

The Importance of Workers’ Compensation

There are a number of reasons why it’s important to have a workers’ compensation policy if you have a business with employees. Here are some of the more prominent reasons:

  • Financial Considerations: If a major injury occurs and there is no workers’ compensation coverage in place, you’ll be left with big bills to pay. Medical expenses, recovery costs, and any other related expenses will all fall on you. With that said, covering your business pays off by protecting you from huge financial losses if an accident occurs. 
  • Legal Considerations: Having a workers’ compensation package ensures that your business is compliant with state laws. This is vitally important, because if you’re not compliant, you may face costly penalties or even lawsuits. 
  • Employee Morale and Piece of Mind: Employees who know they are protected in the case of a workplace accident feel safer and more at ease. Additionally, if an accident occurs, employees will likely feel appreciative, knowing they don’t have to worry quite as much. 

Disability Insurance Explained

Disability insurance provides financial help to workers who are unable to attend their job because of disability. In general, disabilities include illnesses or injuries. What’s important to take note of when it comes to disability coverage is that coverage is administered regardless of whether the cause is related to the individual’s job or not. For example, if someone works in an office, and breaks their leg while on vacation, if the company has disability coverage, the individual will still reap the benefits. While disability coverage varies from plan to plan, in general its purpose is to cover affected employees by replacing a percentage of their normal wages. Here are some of the key features of disability coverage:

  • Broad Protection: As mentioned, disability insurance covers accidents that arise from both work-related and non-work-related incidents. This flexibility makes the coverage type extremely valuable for employees. 
  • Two Segments: Disability coverage is divided into two types. This includes short-term disability, and long-term disability, each of which cover different time frames and specific types of disabilities. Short-term coverage usually provides wages for a few months, while long-term can extend for multiple years. Specific durations depend on the terms of the policy at hand. 
  • Coverage is Optional: Providing disability coverage for your employees is optional for almost every state. The exceptions are California, Hawaii, New Jersey, New York, Rhode Island, and Puerto Rico. In these places, employees are required to receive at least short-term disability coverage. 

The Importance of Disability Insurance

While not required, there a number of reasons why it pays off to have an active disability insurance plan: 

  • Financial Stability for Employees: With disability coverage in place, employees will be at ease knowing they are covered in the case of an injury or sickness. By removing some of the associated financial burden, individuals have more time to focus on their recovery. 
  • Faster Recovery Time: By paying a portion of the employees wages, they are more likely to recover faster. This means you don’t have to spend as much money on replacement workers, and the individual can return to their normal duties faster. 
  • Competitive Hiring Advantage: Today’s job market is extremely competitive for both employers and employees. One way to stand out among the mix is by offering an extensive insurance package that includes disability coverage. Disability coverage goes a long way in attracting potential new employees. 

Comparing Both Insurance Types 

Key Differences

The key distinctions between workers’ compensation and disability coverage comes down to legal requirements, the scope of the coverage, and the extent or length of coverage:

  • Legality: Disability insurance is optional (other than in a handful of states). On the other hand, workers’ compensation is required for every state except Texas.
  • What’s Actually Covered: Workers’ compensation serves employees by offering protection for job-related injuries or illnesses. Disability coverage protects against a wider range of disabilities which includes both on-site and off-site injuries or illnesses. 
  • Length of Coverage: In general workers’ compensation is meant to help employees get by while recovering from their workplace accident. With that said, it is usually more temporary. On the other hand, disability can offer longer-term benefits depending on the policy terms and injury or illness. 

Considerations When Choosing Coverage

When it’s time to decide on the coverage type you want or need for your business, there is a lot to consider. Legal requirements, financial considerations, and employee preferences are all important to keep in mind. 

State Regulations

As a business owner it’s vital that you understand the laws and requirements for the state that you operate in.  If you are in a state requiring one or both of these coverage types. Then you don’t have much else to consider. That’s because if you don’t comply with the laws, you’ll end up paying far more money later down the road. To understand which states require coverage, refer to the above sections. 

Industry-Specific Considerations

The type of industry that you’re a part of also affects the importance of each coverage type. For example, if you work in an industry where there is a higher risk of workplace injuries. Disability and worker’s compensation will be more valuable to you. Thinking about the number of specific duties and responsibilities that include hazards will help you in this effort. 

Employee Demographics

The age of your employees and their overall health also affects this decision for you. In general, the older the employee is, the higher the chance of an injury or illness. This is especially true, if the job at hand is physically taxing. In these cases, it may be more worth having disability coverage compared to a company with workers who are all in their 20s. 

Financial Impact

If you aren’t required by law to have one or both of these insurances, it comes down to risk. Weigh the pros and cons of having disability and workers’ compensation by evaluating what it could cost you if an accident occurs and you aren’t covered adequately. Consider legal costs, settlements, and any other relevant factors. Also consider the dangers involved in your business. If the risk of being uninsured outweighs the potential money you’d have to pay out. Then maybe you opt out of having disability or workers’ compensation. 

Wrapping Up

Even though disability insurance and workers’ compensation are similar, at the end of the day they function differently. With that being said, both coverages are essential to protect yourself and your employees. There are many considerations to keep in mind when deciding what type of coverage you want to employ. Legal requirements, industry risk factors, employee demographics, and financial considerations are all important to keep in mind. When it’s all said and done, it’s ultimately up to, but if possible, we always recommend having both coverage types. When they are combined, your company reaps the benefits in the case of an accident. All the while your employee’s minds are eased knowing they are protected inside and outside of the workplace.


If you want to take the next step in protecting your company, look no further than GHQ! Our team of experts work around the clock to pair business owners like yourself with comprehensive group coverage that makes everyone happy. The process takes just a couple of minutes and by the end, you’ll receive free quotes from top-rated carriers in your area. The only question left to ask is… what are you waiting for?! To get started just fill out a form or give us a call at 888-571-0291.

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Kyle Mehlman

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