For self-employed people who work in fields perceived to be high-risk, we offer expert advice on worker's comp, disability, and health insurance
I moderate a message board for the pet-sitting industry and frequently get asked how our members can handle on-the-job injuries that prevent them from working. Injuries are not uncommon and can happen from falls, eager and rambunctious client pets, attacks from stray animals, and bites from poisonous insects. Most pet-sitting business owners have no employees. Can they get worker's compensation insurance?—K.D., Dousman, Wis.
Worker's compensation insurance is typically purchased by companies that have employees and are mandated by the state to insure them. In some states, the owner of a company is excluded from workers' comp coverage. But even in places where a business owner can get coverage through workers' comp, such as California, it would probably be too expensive and too difficult to find an insurance company to provide that coverage for firms with no employees.
Workers' comp provides broad coverage for work-related illnesses or injuries and typically pays income benefits according to a prescribed state formula. It starts paying income benefits a relatively short period of time after an individual becomes unable to work, and continues paying as long as the worker is disabled—until they retire or die. Worker's comp also pays benefits for partial injuries that do not result in total incapacitation.
This coverage tends to be very expensive and sometimes tough to obtain. "Most insurance companies would not offer the coverage [to a self-employed individual] as the premium would be too low for the associated risk," says Rick Hagemeier, executive vice-president of Bolton & Co. in Pasadena, Calif.
Laws Vary By State
Robert Klein, director of the Center for Risk Management & Insurance Research at Georgia State University, agrees that workers' compensation insurance is probably not appropriate for most self-employed people. If the owners of pet-sitting businesses do have employees, they will generally be required to purchase worker's comp insurance if they employ more than a specific number. The threshold varies from state to state, Klein says. "Small business owners with employees need to check out their state's workers' comp laws to determine whether they are required to have the insurance."
A self-employed person is more likely to find coverage for serious injuries by purchasing an individual insurance plan (BusinessWeek.com, 5/16/07) that includes both medical and disability insurance. However, there are a couple of wrinkles your members could face trying to get disability insurance.
One is that both disability insurance and health insurance normally exclude work-related injuries and illnesses under the assumption those problems will be covered by workers' comp. "If a self-employed person was using this coverage for work injuries and illnesses, that exclusion would need to be removed, which will increase their cost," Klein says.
Work With an Insurance Broker
The second potential problem is that disability insurance is typically tougher for self-employed people to buy and more expensive as well. That goes double for people whose income may be tough to document and those who work in fields perceived to be high-risk, such as jobs involving animals.
"The best thing to do is work with an insurance broker, submit an application, and see what happens. Some companies that are easygoing provide up to $2,500 in maximum disability coverage that could be relatively easy to get, though I'm not sure how much it would cost," says Dave Ortolf, a broker with Adams Avenue Insurance Agency.
Using an Association for Group Rates
When shopping for an individual insurance plan, make sure you identify the applicable waiting period before disability benefits begin, Hagemeier says. Instead of deductibles, many policies require an "elimination period" (a waiting period before disability benefits are paid out that can range from 30 to 365 days). Anyone shopping for a disability policy should also make sure they know what degree of injury or disability will trigger the coverage and how long the benefits would be paid out before they expire. "They pay for up to a specific period of time called the benefit period. This is one, two, or five years, or to age 65 or 67," says Barry A. Sikov, a financial adviser with Belair Insurance Services. "The shorter the elimination period and the longer the benefit period, the greater the premium would be."
Your pet-sitter's association might consider working with an insurance company to offer some form of group insurance to its members, either through a worker's comp or a disability insurance group plan, Klein suggests. Such a plan could be marketed through your association without it having to get involved in financing or bearing any risk, and it would provide a valuable benefit for current and new members who may be struggling to get individual insurance. "An association could negotiate much better terms for its members with an insurer that would group-market a plan through the association," he says.
Finally, the dangers inherent in pet-sitting, and the difficulty and cost of getting insurance, make it very important for your members to tuck away a financial cushion that will get them through at least a few months of expenses in case a bite or other injury keeps them from serving clients temporarily.