Function

• The purpose is to provide coverage for a company's employees. This type of insurance represents a contract between an employer and an employee. In return for providing workers comp, an employee waives the right to sue her employer for injuries. This coverage is separate from regular medical coverage that an employee may also receive. Workers' comp is strictly for injuries and illnesses that occur from the job.
  
  

State Requirements

• Most states require business owners to carry some form of workers' compensation for employees. The only exception to this rule is the state of Texas. In Texas, you are not obligated to carry workers' compensation for employees. But many companies in Texas still carry this type of insurance so they can limit the liability from an employee being injured on the job.
  
  

Private vs. State Coverage

• Some companies buy this type of coverage directly from the state while others buy it from private companies. The vast majority of states require businesses to buy from private companies. There are five states (North Dakota, Ohio, Washington, West Virginia and Wyoming) that require businesses to buy this insurance directly from the state. These states are While the coverage is essentially the same, when you can shop around for coverage you may be able to get better rates.
  
  

Exceptions

• Even though the majority of businesses have to purchase workers' compensation for their employees, there are some exceptions to this rule. Certain industries do not have to purchase this type of coverage. For example, real estate brokers do not always have to buy this for their real estate agents. Agricultural employees are also sometimes exempt from this type of insurance. Some states also exempt companies that have very small payrolls or low numbers of employees.
  
  

No Employees

• Some business arrangements do not have any employees. For example, sole proprietorships and partnerships do not have any employees that are not owners in the business. These businesses are not required to purchase workers' compensation insurance. Some states allow these types of businesses to purchase workers' comp to cover themselves if they desire.