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A Video About Workers Compensation For The Sole Proprietor

How being a sole proprietor effects a workers comp policy.

In this video, from Work Comp Consultants Video Network, we talk about the importance of using the correct business name and entity on a workers compensation policy. We review the most common entity types, policy provisions and how using an incorrect name can effect the workers comp policy. And we explore a few reasons why incorrect entities are used.

Video Outline:
  • Workers Compensation: Importance Of Using The Correct Business Entity

  • The Most Common Business Entities:
    • Sole Proprietor
    • Partnership
    • Corporation
    • and LLC's

  • The Workers Compensation Policy Is A Contract:
    • Policy Terms Apply
    • Policy Conditions Apply

  • What Happens When Incorrect Entities Are Used:
    • Coverage Issues
    • Premium Issues

  • Factors That Contribute to Incorrect Entities Being Used:
    • Agents Poor Understanding Of Policy Provisions
    • Client Organizational Structure
    • Poor Communication
    • Poor Understanding of Entity Functions by Insurance Company Underwriters

  • The Importance of Getting It Right!

Video Transcription:

Get it right! Make sure the named insured on your workers compensation policy is correct!

Hi! I'm Randy Sieberg, and welcome to another edition of Workers Comp Consultants Video Network.Today we're going to talk about the importance of using the correct business name or entity on your workers compensation policy.

There are four basic forms of business ownership otherwise known as entities. They are:
  • Sole Proprietors
  • Partnerships
  • Corporations
  • And LLC's
And while other organizational forms exist, and are just as important, these are the most common ones that insurance agents, insurance companies and their clients deal with more frequently. We’ll have more about individual entities and how they affect workers comp policies in another edition.

A workers compensation policy is a contract. It's a contract between the insurance company issuing the policy and providing protection and the business organization, entity or named insured purchasing the policy. Terms and conditions found within the policy provisions dictate for who and how the policy will respond with coverage.

Here are some of the problems you may run into when incorrect entities are used on a workers comp policy:

Coverage and Premium issues are two types of problems that exist when incorrect business entities are used on a workers comp policy.

Denial of coverage is a primary issue.

It's a simple concept, as an example, if I conduct business as a sole proprietor and my name is John Doe then the named insured on my policy should be John Doe. If I conduct my business as a corporation named XYZ, Inc then the named insured on my policy should be XYZ, Inc.

The problem comes when my business is a corporation called XYZ, Inc. and the named insured on my policy is shown as John Doe. In this situation the policy will cover John Doe, not XYZ, Inc. So When a claim for injury is made by an employee of XYZ, Inc., there will be no coverage.

And you better believe that an insurance company will quickly deny a claim when the claim is against an entity that's not listed as a named insured on the policy!

Premium Issues are another problem.

You'll find that entities are treated differently when it comes to the rating or pricing of a workers comp policy. Sole Proprietors and Partners are different than Corporate Officers and Corporate Officers are treated differently than LLC Members. A different rating base may be used for each different type of entity depending on your individual states specific rules and guidelines. The use of an improper entity may generate additional unexpected premium when discovered and corrected by an insurance company.

Here's some factors that may contribute to entity errors on workers comp policies.

A few common causes for entity errors on a workers comp policy include; a general lack of understanding on the insurance agents part about the named insured provisions in the workers comp policy or a poor understanding of their clients business organizational structure.

Another cause may be poor communication between the insurance agent and their client purchasing the policy or incorrect information provided to the agent by their client and a general lack of verification.

Even Poor understanding and oversight of entity functions by insurance company underwriters contribute to the problem.

Organizational structures can be complicated. There can be multiple business entities under the same ownership umbrella and sorting these out and correctly showing them on a policy can be very difficult.

It's basic, but important! This is an area often overlooked by insurance agents, their clients and insurance company underwriters. And it's an area that can cause serious problems if not handled properly.

So Learn more about business entities and how they can effect workers compensation policies at our website, WorkCompConsultant.com!

And Thanks for Watching!

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