Benefits, Policy Structure & Premium
Key Takeaways
- Workers compensation benefits include unlimited medical care, disability income (temporary/permanent, total/partial), rehabilitation, and death benefits.
- Part One (Workers Compensation) pays statutory benefits with no dollar limit; Part Two (Employers Liability) covers out-of-system suits with dollar limits.
- In monopolistic Ohio, Part One benefits come from the BWC and employers buy stop-gap employers liability privately.
- WC premium is payroll-based by classification code, adjusted by the experience modification factor, and reconciled by year-end audit.
What Workers Compensation Pays
Workers compensation provides several categories of statutory benefits, and the exam expects you to identify each. Benefits are set by statute, not negotiated, and replace tort damages.
| Benefit | Pays for |
|---|---|
| Medical | Unlimited reasonable and necessary medical treatment for the injury |
| Disability income | A percentage of lost wages: temporary total, temporary partial, permanent total, permanent partial |
| Rehabilitation | Vocational and medical rehabilitation to return to work |
| Death benefits | Burial allowance and income to surviving dependents |
Disability Categories
Disability benefits are classified along two axes, duration (temporary or permanent) and extent (total or partial), producing four combinations: temporary total, temporary partial, permanent total, and permanent partial disability. Income benefits typically pay a percentage of the worker's average weekly wage (commonly around two-thirds), subject to statutory minimums and maximums set by each state. Medical benefits are generally unlimited for reasonable and necessary treatment of the work injury, a key contrast with the capped medical-payments coverages elsewhere in P&C.
The Two Parts of the WC Policy
In competitive states, the standard Workers Compensation and Employers Liability policy has two parts the exam tests:
- Part One, Workers Compensation, pays all benefits the workers compensation statute requires, with no dollar limit, because the insurer promises to pay whatever the statute mandates.
- Part Two, Employers Liability, covers the employer's liability for work-related injuries that fall outside the statutory system, such as third-party-over actions (a third party sued by an injured worker brings the employer in) and certain consequential-injury claims. Part Two has dollar limits (bodily injury by accident, by disease each employee, and by disease policy limit).
In a monopolistic-fund state like Ohio, Part One benefits come from the state fund (BWC), and employers buy stop-gap employers liability coverage in the private market to fill the Part Two gap the fund does not provide.
Premium Basis and Experience Modification
Workers compensation premium is based on payroll, calculated per $100 of payroll using classification codes that reflect each job's hazard. The premium is adjusted by an experience modification factor (mod), which compares the employer's actual loss experience to the expected losses for its class: a mod above 1.0 raises premium (worse-than-average losses), and a mod below 1.0 lowers it (better-than-average). Because the policy estimates payroll at inception, an audit at the end of the term reconciles actual payroll to the estimate and adjusts the final premium.
The exam tests that WC premium is payroll-based, modified by the experience mod, and audited, and that Part One has no dollar limit while Part Two carries limits, the structural distinctions that recur in both the national and Ohio portions of the exam.
Which part of the standard Workers Compensation and Employers Liability policy has NO dollar limit, and why?
An employer with worse-than-average loss experience has an experience modification factor above 1.0. What is the effect on premium, and on what base is WC premium calculated?
Benefits and the Two-Part Policy
Workers compensation pays statutory benefits that replace tort damages: generally unlimited medical care for the work injury, disability income (a percentage of lost wages, commonly about two-thirds, subject to state minimums and maximums), rehabilitation, and death benefits to dependents. Disability is classified along two axes, duration and extent, yielding temporary total, temporary partial, permanent total, and permanent partial disability.
In competitive states the standard Workers Compensation and Employers Liability policy has two parts. Part One pays all statutory benefits with no dollar limit, because the insurer promises whatever the law requires. Part Two (Employers Liability) covers suits outside the statutory system, such as third-party-over actions, and carries dollar limits.
| Element | Rule |
|---|---|
| Part One (WC) | Statutory benefits, no dollar limit |
| Part Two (employers liability) | Out-of-system suits, dollar limits |
| Premium base | Payroll per $100 by class code |
| Experience mod | Above 1.0 raises; below 1.0 lowers |
In monopolistic Ohio, Part One benefits come from the BWC, and employers buy stop-gap employers liability privately to fill the Part Two gap. Premium is payroll-based, calculated per $100 of payroll using classification codes that reflect each job's hazard, then adjusted by the experience modification factor (worse-than-average losses raise it above 1.0) and reconciled by a year-end audit of actual payroll.
When a question asks about the no-limit Part One versus the limited Part Two, the payroll-based premium, or the experience mod, recall these mechanics, which recur in both the national and Ohio portions of the exam.
Memorize the two-part structure: Part One (Workers Compensation) pays all statutory benefits with no dollar limit, because the insurer pays whatever the law requires, while Part Two (Employers Liability) covers suits outside the statutory system, such as third-party-over actions, and carries dollar limits. Benefits include unlimited medical care, disability income (temporary or permanent, total or partial, commonly about two-thirds of wages within statutory caps), rehabilitation, and death benefits.
Premium is payroll-based per $100 by classification code, adjusted by the experience modification factor (above 1.0 raises premium) and reconciled by a year-end audit. In Ohio, Part One comes from the BWC and Part Two is bought privately as stop-gap.
Remember that the no-dollar-limit feature of Part One is unique among the coverages on this exam, the insurer promises whatever the statute requires, so a question contrasting a capped coverage with workers compensation benefits is usually testing that Part One has no limit while Part Two (employers liability) does, a distinction that also explains why Ohio's BWC handles Part One and stop-gap handles Part Two.