While W-2 employees are covered by their employer’s Workers’ Compensation (WC) policies, 1099 employees (independent contractors) may find themselves uninsured if a workplace injury occurs. Many industries, including construction, trucking, staffing, hospitality, and healthcare, rely on independent contractors for flexibility and cost efficiency.
Although independent contractors offer advantages for both workers and employers, injuries can happen to anyone on the job. Occupational Accident Insurance (OAI) can help provide financial protection for independent contractors while also helping businesses manage risk.
What is OAI?
OAI is intended to protect independent contractors in the event of work-related injuries or accidents. Coverage typically includes:
- Medical expenses: Covers costs associated with medical treatment, hospitalization, surgeries, and medications.
- Disability benefits: Helps replace lost income and support financial stability during recovery.
- Accidental death and dismemberment: Provides financial support to independent contactors and their dependents in case of accidental death or permanent disability.
OAI vs. WC coverage
While both offer injury-related benefits, there are some key differences:
- Legal requirement: WC insurance is legally mandated in most states, while OAI is not.
- Coverage scope: OAI is intended to cover accidental injuries and death. Unlike workers’ compensation, it is not a “no fault” system. If an independent contractor is found to be at fault, they may not be eligible for benefits.
- Employer liability: WC insurance typically protects employers from employee lawsuits in exchange for WC benefits and employees give up their right to sue their employer for negligence. OAI does not provide the same level of protection for employers and may still be liable for negligence claims.
- Premiums and cost: OAI is generally 30% less expensive than WC insurance, making it a more affordable option.
- Eligibility: WC insurance covers W-2 employees. OAI is intended for independent contractors or self-employed individuals who are not eligible for WC benefits.
Benefits of OAI
- Independent contractor retention: Offering coverage can help attract high quality candidates, improve retention rates, and distinguish a business from other like businesses.
- Protects WC programs: Providing OAI can mitigate the risk of contactors seeking WC programs intended for W-2 employees. In turn, this helps preserve stability and control costs.
- Mitigating financial risk: Work-related injuries and accidents can lead to significant financial burden for both independent contractors and businesses. The protection can help cover costs and reduce potential litigation.
Contingent liability insurance
Contingent Liability coverage is often purchased in conjunction with OAI. This coverage applies if an independent contractor is injured and their status as an independent contractor is challenged. In these cases, the policy may provide WC equivalent benefits.
As the use of independent contractors continues to grow across industries, OAI should be considered by businesses looking to protect their financial interests, retain employees, stand out against their competitors, and protect their WC programs.
To learn more about these programs, contact a Marsh McLennan Agency (MMA) advisor today.
