The Importance of Workers Compensation Insurance

Workmen Compensation is a type of insurance policy that safeguards an employee against any injury or death during the job time. Businesses with extreme exposure to health or life hazards have a risk of injury or the death of one or more employees, and employers are very keen on finding an affordable to way to deal such heavy expenses, especially with the growing economy. Workmen Compensation is one of the most effective ways to solve this problem and mandatory in most countries, including in India.

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    The total cost of medical treatment and low wages are covered under Workmen Compensation insurance policy, in case the injury is caused during or due to the employment. The cost of insurance may vary according to the level of risk involved in the job. There are certain job profiles that involve greater risk of injury and the death of the labor. Like other insurance policies, workmen compensation plans also need the premiums, and the only difference is that the employer bears the cost, i.e. the premium payable to the insurance policy. The premium payable for workmen compensation depends on the employee’s job profile, their experience, and a number of claims that have been paid in the past.


    No matter what mode of employment is offered, each employee should be covered by workmen compensation insurance. If he or she is not provided with health cover by the employer, then they need to purchase health cover on their own. Employers who offer freelance work also need to provide workmen compensation insurance to their freelancer workers. Although workmen compensation insurance is not mandatory in all the countries, it depends on several key factors, such as the size of the business and the laws related to Workmen Compensation.

    Let Us Check the Importance of Workmen Compensation

    Importance of Workers Compensation Insurance

    It is Mandatory by Law

    Workmen compensation is mandatory in many countries even if the organization has only one worker. It is mandatory to cover employees under worker’s compensation insurance.


    A good, active safety program will not only keep your employees safe, but it will also save your extra expenses. Make sure you use methods to lower the chance of accidents. This will help you to get a worker’s compensation insurance at an affordable premium amount.

    It Helps Protect the Employees

    It helps the employer to protect the most valuable asset of the organization, i.e. employees. In a situation where the job profile involves certain risks that can cause injury or causes the death of an employee, this insurance policy works like a shield and protects the employer against heavy expenses incurred due to handling workers’ liability. Remember, with workmen compensation, you can ensure safety for your employees or workers at an affordable price and limit your liabilities against any adverse situations.

    Workmen Compensation Insurance in India

    This insurance is mandatory under The Workmen’s Compensation Act, 1923, in India. It is important for both the employee and the employers. In India, for all manufacturing units with more than 20 employees, having a  Workmen's Compensation Insurance is mandatory to have insurance benefits for workers or employees as per the Employees’ State Insurance Act, 1948. Likewise, for all companies or manufacturing units with less than 20 employees, it is important to ensure Workmen’s Compensation Insurance according to the Workmen's Compensation Insurance Act, 1923 and Indian Fatal Accidents Act, 1855.

    Importance of Workmen Compensation for Employee

    The policy aims at protecting the workmen and their dependent in case they meet any accident or injury while working in the organization. It helps the workmen as it bears the cost of treatment in the event any employee dies or causes permanent disablement due to any course of employment.

    Importance of Workmen Compensation for Employers

    This policy helps the employers to avoid the extra expenses incurred in case any worker meets any unfortunate events while working in the organisation. Workmen compensation insurance bears the cost incurred due to treatment on behalf of the employer.

    As an employer, you are liable to pay compensation in case of death, permanent total or partial disability and/or temporary disability. However, you would not need to pay any compensation in case of the death or disability of the employee due to the influence of alcohol, drugs or other intoxicating substances. You’re also not liable to pay any compensation in the event when the employee wilfully disobeys or disregards the safety or security rules or regulations stipulated by you or management.

    You May Also Like to Read: What Health Insurance Means for Business Owners? 

    Procedure of Claiming Workmen’s Compensation Insurance

    Claims under Workmen’s Compensation Insurance can be made for any fatal or non-fatal injuries or death arising due to the nature of employment.

    For making claims in case of accidents, you as an employer need to:

    • Inform about the incident to the authorized Workmen Compensation Commissioner of your area.
    • File the first information report with the Police, and
    • Inform your insurer of the accident.

    Check Some Important Tips to Lower the Premium

    • Make a written document that explains how safely the jobs should be performed. This is one of the best tricks that can help you reduce your premium.
    • The employer should be trained appropriately regarding the use of certain equipment that can injure or harm its workers.
    • Don’t do things just for the sake of doing them. Be honest with what you’re doing. Remember, such an attitude may attract cancellation risk after an audit or inspection by authorities is done. Don’t hide any facts at the time of audit; be truthful about the risks involving your employees or workers in their occupation.
    • When making a budget for your operations, be mindful of allocating a small budget to the work safety training of your employee or workers. Ensure regular safety meetings to spread the importance of safety at work.
    • Remember, the premium calculation for workmen compensation is typically based on the payroll and job classification. So it makes sense to ensure clear job descriptions with a distinct job classification and payroll projection for 12 month period. Remember, workmen compensation policy is an auditable policy. So, do well to keep things clear and transparent in order to avoid cancellation.  

    If the organization does not have a workmen compensation insurance policy, then it will have to face the possibility of bearing expensive medical treatment bills, or lost wages when an employee is injured and not willing to work. It is also considered as an illegal act in the country, where workmen compensation insurance is mandatory by the law.

    The Bottom Line

    Now, you have ample of knowledge of workmen compensation insurance. Therefore, it is better to protect your employees than being sorry later. If you are confused about buying workmen compensation insurance from a wide range of available plans, then contact a reliable agent to find out the policy that covers and fulfils the possible risks during the work hours of your company.

    Written By: PolicyBazaar - Updated: 30 June 2021
    Disclaimer: Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by an insurer.

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