Cover Charge

All states except Texas and South Carolina require entrepreneurs to purchase workers' compensation insurance after reaching a certain level in terms of either payroll or number of employees. The core of the coverage includes paying medical bills and lost wages for employees injured on the job, and employer's liability, which protects the business owner should he or she be sued by the spouse or children of an employee who was permanently disabled or killed on the job.

Some states automatically include the business owner in the policy; others don't, and if you want to be covered, you must make special arrangements.

If you're looking to cut corners and figure that since you have health insurance, you don't need workers' compensation, think again, says Todd Muller of the Independent Insurance Agents of America. Most health insurance policies exclude work-related illnesses or injuries.

One cost-conscious alternative is to see if your state has a risk-sharing insurance pool. However, this is insurance of last resort and typically does not offer any of the discounts available in the voluntary market. (For more on cutting workers' compensation costs, see "Accidents Happen," July 1995.)

This article was originally published in the February 1996 print edition of Entrepreneur with the headline: Cover Charge.