Understanding Alternative Workers’ Compensation Plans

Adequate workers’ compensation coverage is vital to ensure financial coverage for any employees who are injured performing their duties. Traditional plans are obtained through a third party. However, self-funded workers comp plans are gaining in popularity.

Self-Funded Plans

When using a self-funded plan, the company pays for workers’ compensation claims itself. While this may seem simple, the laws regarding these plans vary by state.

In some cases, companies are required to have a minimum amount of money set aside for the payment of workers’ compensation claims.

If excessive claims occur, the company may experience financial difficulties. Protection in the form of an excess insurance policy can be purchased from a third party. This provides coverage for claims once they have reached a specific dollar level, preventing the company from declaring bankruptcy or operating at a reduced capacity.

Captive Insurance Plans

A captive insurance plan can be thought of as a hybrid between a self-funded policy and a traditional plan. The company assumes the role typically held by a third-party insurance company to manage the risks and reap any profits.

Operating captive insurance can be complicated. Staff members handling the policy must be knowledgeable and adaptable to changing laws and regulations.

The laws governing self-funded and captive insurance plans vary by state. Check the applicable regulations before selecting an insurance policy.