What is claim of indemnity in a Workmens’ Compensation Policy?
General insurance policies work on the principle of indemnity. The principle of indemnity states that after a loss is suffered, the insurance company should compensate the actual amount of loss suffered by the policyholder. The bottom line of the principle of indemnity is to put the policyholder in the same financial position that he was in prior to the loss.
In a workmen’s compensation insurance policy, the policy covers the legal liability faced by the employer if the employee suffers an injury or dies during employment. If, due to the nature of the employment, the employee suffers death, disablements and/or injuries, it is the employer’s duty to compensate for the financial loss suffered by the employee. That is why a workmen’s compensation policy is bought so that the compensation is handled by the insurance company.
In an insurance policy, if the employee is injured or killed, the claim which would occur would be called a claim of indemnity. As such, the following compensation would be paid under the policy for different types of claims –
1. In case of physical injuries
If the employee suffers from physical injuries which render him or her unable to work for some time, the workmen’s compensation policy would pay the loss of income. The wages/salary of the worker on a per day basis would be paid for the number of days the employee is unable to work. This would ensure that the employee gets the wages lost during his recovery.
2. In case of permanent disablement
If the employee is disabled and is not able to return to work, a lump sum benefit is paid to the employee. This benefit is as per the limits specified under the workmen’s compensation policy. In this case, however, the principle of indemnity is not applied because the value of human life cannot be correctly estimated. That is why a lump sum payment is made which would be sufficient enough to take care of the employee after his unemployment.
3. In case of death
The principle of indemnity does not apply in death cases too. The reason is the same that the value of human life cannot be calculated. So, in the workmen’s compensation insurance policy, there is a sum insured amount which is payable if the employee dies. This amount is calculated considering the wages of the employee. Thus, in case of death, the death benefit is paid in lump sum to the employee’s family ensuring that the family gets the financial support, even in the absence of the sole bread-winner.
4. In case of medical claims
A worker compensation policy can be extended to cover the medical costs incurred if the worker is hospitalised following an injury. If medical costs or hospitalisation are covered, the claim would be treated as the claim of indemnity. The policy would pay the actual medical costs incurred on the treatment of the employee.
5. In case of a lawsuit
Legal defence costs can be covered under a workmen’s compensation policy with the consent of the insurance company. In this case too, the principle of indemnity is applicable. The policy pays the actual costs incurred in defending the organisation in litigation.
Understanding the claim concepts helps organisations understand how the claim under a workmen’s compensation policy is paid. So, the concept of indemnity should be clearly understood before filing a claim under worker compensation insurance policy.