Why do you need workers' compensation insurance?
Workers compensation insurance provides coverage of medical care and other compensation of benefits to employees who are insured in the course of employment in exchange for mandatory relinquishment of the employee's right to sue their employer for tort of negligence.
There is a tradeoff between the assured, limited coverage and lack of recourse outside the worker compensation system called "the compensation bargain". While schemes differ between jurisdictions, provisions can be made for weekly payments in place of wages, compensation for economic loss, reimbursement and payment of medical expenses, and benefits payable to the dependents of workers killed during employment.
How does it work?
California’s workers’ compensation act provides an example of a comprehensive state compensation program. It is applicable to most employers. The statute limits the liability of the employer and fellow employees. As stipulated in the law, California requires employers to obtain insurance to cover potential workers’ compensation claims. In purchasing insurance, the employer’s insurance carrier agrees to indemnity the employer’s employees on the employer’s behalf for potential loss of wages, medical treatment, or other benefits payable to the employee up to the policy’s liability limit.