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What is Workmen’s Compensation Insurance and Why it’s Crucial

By Vikas Chandra Das
16 November 2022, 12:11 PM

Employees are among the most invaluable assets of an organisation and must be cared for like any precious thing. When the workforce feels secure, it enhances their productivity and leads to loyalty. Besides a conducive work environment, employers can provide the staff with Workmen’s Compensation Insurance to safeguard their well-being. In other words, if the employee suffers from health issues or a bodily injury while on duty, a unique category of health insurance, thanks to the Workmen’s Compensation Act of 1923, guarantees that they and their dependent family members receive fair compensation. The policy is also crucial for businesses as it shields them from the possibility of significant settlement and additional legal actions, especially for companies whose workers are subjected to severe health and safety risks.

What Does the Workmen’s Compensation Insurance Cover?

Like any other insurance policy, including health insurance plans, Workmen's or Workers' Compensation Insurance involves the obligation to pay a premium. The main distinction is that the employer is responsible for paying the premium, which depends on the employee’s job description, experience level, and the number of claims paid previously. The coverage provided includes:

  • Bodily harm brought on by an incident occurring while performing work-related duties
  • Physical harm brought on by an ailment or made worse by the work environment
  • Death
  • Temporary disability 
  • Permanent complete or partial disability 
  • Legal fees and expenses paid with permission from the organisation

Workers Protected Under the Policy

Following the 2017 amendment to the Act, employers must advise employees of their legal entitlement to compensation via written papers, electronically, and in a language they can understand.

The policy covers the following frontline employees in India:

  • Workers in establishments such as factories, mines, docks, construction sites, etc
  • Employees hired overseas
  • Captains or crew members on an aircraft, drivers, mechanics, or any occupation involving automobiles
  • Employees of railways who are not continuously employed in administration, district, or sub-divisional offices

Employees’ Compensation Policy Exclusions

Like any health insurance plan, Workmen’s Compensation Insurance also has its set of exclusions whereby the employee will not be entitled to compensation. These conditions are:

  • Nonfatal wounds
  • Injuries induced by conflict, wars, riots, or nuclear weapons or materials
  • Initial 3 days of disability and less than 28 days of the overall disability
  • All accidents that don’t leave their victims partially disabled for longer than 30 days
  • Liabilities by contractors’ employees
  • Injuries or diseases to employees who are not viewed as workers as per the Workmen’s Compensation Act
  • Conditions listed in Workmen’s Compensation Act section (C)
  • Any modifications made to the provisions’ statutory language following the policy’s launch
  • Accidents or injuries brought on by consuming alcohol or drugs
  • Injuries brought on by internal security device removal, security device negligence or breaking safety norms

Compensation Payable Under the Act

The following are the wages that an employer must pay the frontline staff in case of an injury, death or disease:

  • Death: 50% of the employee’s monthly salary multiplied by applicable factors or INR 120,000, whichever is greater.
  • Permanent Total Disability: The higher amount from INR 1.4 lakh or 60% of the monthly salary, multiplied by the applicable factor
  • Permanent Partial Disability: A percentage of the lost earning capability as a result of the injury
  • Temporary Disability: 25% of the sufferer’s monthly salary 

Procedure to File Workers’ Compensation Insurance Claim

If an employee suffers a grievous injury or disease at work, the employer must report the occurrence to the local authorised Workmen’s Compensation Commissioner. They must then provide the police with the initial information report and intimate the insurer. 

How an Employer can Reduce Workmen’s Compensation Insurance Premiums

The following are some suggestions for reducing the cost of Workmen’s Compensation Insurance premiums:

  • Make a thorough written explanation of how to complete a task safely. 
  • Typically, the insurer takes the payroll and job classification into account while calculating the premium. Thus, it’s crucial to have a precise job description and a well-defined designation and payroll prediction for 12 months. Additionally, since Workmen’s Compensation Insurance is an auditable plan, maintain everything as transparent as possible to avoid termination.
  • Employers and employees should receive enough training on how to operate equipment that has the potential to harm someone.
  • Set aside a modest portion of your budget for training all affected workers and employees when you create funding for your duties and operations.
  • Be open and honest about the dangers concerning your business during the audit, and don’t withhold any pertinent information or facts.

Things to Consider While Buying a Policy

To ensure that the policy works in your and your employees’ favour, consider the following factors:

  • Coverage should offer the highest level of protection for your business and employees.
  • A standard plan may not cover all risks and liabilities. So, research for an insurer that has add-ons. Understand your company’s needs before deciding if you need any riders.
  • Depending on the risks to your employees and business, get a policy where you can increase the sum insured.
  • Check the insurer’s CSR and ease of applying and approval of claims.
  • Buy a policy that offers benefits such as a no-claim bonus (NCB), lower premium rates, special offers, and employee and employer self-service apps.


Workmen’s Compensation Insurance, also called Workers' or Employees' Compensation Insurance serves two main goals -- ensuring that the injured workers receive high-quality medical care and payment for a portion of the loss of income and preventing lawsuits by the injured employee against the employer. It also works as a financial safety net for dependent family members in case of partial or complete, temporary or permanent disability, and even death of the earning member while on duty. Organisations must maintain thorough records and be completely transparent in their claims to prevent the policy from being terminated. 


1. Can one buy Workers' Compensation Policy online?

Yes. Almost every insurer provides an online application. It may be advisable as it gives you the scope to compare different plans and choose the best one. After you have narrowed down the list, read all the policy documents carefully before buying the insurance.

2. Which companies provide these plans?

Almost all the big companies in the industry have Workmen’s Compensation Insurance. Some reliable ones are HDFC ERGO, IFFCO-Tokio, ICICI Lombard, etc. 

3. Does Workmen’s Compensation Insurance cover armed forces personnel?

No, armed forces personnel are not eligible for coverage because the Employee State Insurance Act already protects them.

4. Does the Workmen’s Compensation Insurance also safeguard female employees?

Yes, the insurance applies equally to all genders of an organisation’s workforce. 

5. What’s the required documentation to file a Workmen’s Compensation Insurance claim?

The paperwork depends on the type of injury or disease, but it typically includes a filled and signed form, compensation records, agreement papers between the employee and the employer, medical bills, certificate for disability, death certificate, post-mortem report, final investigation report, witness statement and form filled by the insurer. 

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