What is 'Employer's Liability Insurance'

A product for employers that protects them from major financial loss if a worker experiences a job-related injury or illness that workers compensation doesn’t cover. Employer's liability insurance can be packaged with workers compensation insurance to further protect companies against the costs associated with workplace injuries, illnesses and deaths that aren’t covered under workers compensation. Employer's liability insurance is also called “part 2” of a workers’ compensation policy.

BREAKING DOWN 'Employer's Liability Insurance'

Most employees are covered by workers compensation laws that are established at the state level (one exception is federal employees). States require most employers to carry workers compensation insurance, which provides some level of medical expenses and lost wages to employees or their beneficiaries when an employee is injured, sickened or killed by job-related causes. There is no need for the employee to sue the employer to establish fault in order to qualify for workers compensation. If an employee doesn’t feel that workers compensation adequately covers their loss — perhaps because they feel their employer’s negligence caused their injury — they may decide to sue their employer, making punitive claims for pain and suffering. Employer’s liability coverage is designed to cover these types of expenses, which aren’t covered by workers compensation or by a general liability insurance policy. It can also help limit an employer’s losses in that as a condition of receiving a payout under the policy, the affected employee will be required to release the employer and the insurance company from further liability.

If an employer intentionally aggravates an employee’s work-related injury or illness, employer’s liability insurance will not cover the employer’s financial obligations to the employee, and the employer will have to pay the employee out of its own pocket if the employee wins in court. Employer's liability insurance policies also place limits on what they will pay out per employee, per injury and per illness. These limits might be as low as $100,000 per employee, $100,000 per incident and $500,000 per policy. In addition, this insurance does not cover independent contractors.

RELATED TERMS
  1. Workers' Compensation

    Workers' compensation is a publicly-sponsored system that pays ...
  2. Workers' Compensation Coverage ...

    An insurance policy that covers medical care, lost income and ...
  3. Alternate Employer Endorsement

    An insurance policy endorsement that extends workers compensation ...
  4. Special Employer

    An employer who receives an employee on loan from another business, ...
  5. General Employer

    An employer who loans an employee to another business, and who ...
  6. Liability Insurance

    Any type of insurance policy that protects an individual or business ...
Related Articles
  1. Financial Advisor

    What Kind of Insurance Do RIAs Need?

    Advisors spend a lot of time discussing insurance with clients but they also need to consider their own coverage needs as small-business owners
  2. Retirement

    6 Benefits You're Required by Law to Offer Your Employees

    Learn about the benefits that a business must offer to employees, such as family and medical leave, as well as various forms of insurance coverage.
  3. Financial Advisor

    How Do Workers' Compensation Benefits Work?

    What you need to know about Workers' Compensation benefits.
  4. Financial Advisor

    Life Insurance Plans to Help Your Small Business Retain Employees

    How to use and design cash value life insurance plans as an incentive to help attract and retain key employees.
  5. Insurance

    Do You Need Casualty Insurance?

    Find out how different types of coverages can protect you and which policy is right for you.
  6. Small Business

    Hiring? Regulations Small Businesses Need to Know

    When a small business becomes an employer, it has new responsibilities. Make sure you familiarize yourself with regulatory requirements.
  7. Personal Finance

    What's Your Employee Value?

    Have you ever wondered how much you're worth to your boss? Here's a method for calculating that value.
  8. Insurance

    Do You Need Umbrella Insurance For Household Help?

    Homeowners insurance may not be enough – say, if your nanny sues for damages after an accident. That's where umbrella coverage comes in.
  9. Insurance

    Take Advantage Of Employer-Sponsored LTC Insurance

    Find out why 98% of employees are missing out on some great benefits.
  10. Insurance

    What's Compulsory Insurance?

    Compulsory insurance is insurance a person or business is legally required to buy.
RELATED FAQS
  1. Can you fund nonqualified deferred compensation plans with life insurance?

    Understand if a person can fund nonqualified deferred compensation plans with life insurance. Learn what types of plans are ... Read Answer >>
Hot Definitions
  1. Fixed-Income Security

    An investment that provides a return in the form of fixed periodic payments and the eventual return of principal at maturity. ...
  2. Free Cash Flow - FCF

    A measure of financial performance calculated as operating cash flow minus capital expenditures. Free cash flow (FCF) represents ...
  3. Leverage Ratio

    Any ratio used to calculate the financial leverage of a company to get an idea of the company's methods of financing or to ...
  4. Two And Twenty

    A type of compensation structure that hedge fund managers typically employ in which part of compensation is performance based. ...
  5. Market Capitalization

    The total dollar market value of all of a company's outstanding shares. Market capitalization is calculated by multiplying ...
  6. Expense Ratio

    A measure of what it costs an investment company to operate a mutual fund. An expense ratio is determined through an annual ...
Trading Center