Workers' compensation insurance is required for nearly all employees in nearly all states. Sole proprietors, however, are generally excluded from this mandate. Many sole proprietors enjoy this exemption because it allows them to save money on insurance premiums, but some may want to insure themselves anyway to have the coverage for themselves. Arizona sole proprietors are able to do this.
Sole Proprietors
Under Arizona workers' compensation law, sole proprietors must account for themselves when they buy a policy for their employees, by either including or excluding themselves from coverage. If you own your business without any employees, workers' comp is optional for you, but once you hire your first employee, even if only part-time, you must decide whether or not you want coverage for yourself. Insurers are generally willing to extend you this coverage, but you must indicate that you want it.
Right to Purchase
If you have no employees, you do not have to buy a policy, but you reserve the right to purchase one at any time. There is no financial penalty for buying coverage after your business opens because you are legally exempt. However, if you have been in business for some time without coverage and you then decide to apply, your insurer may wonder what happened to change your mind and investigate closely before extending coverage to you.
Rating Base
Workers' compensation premiums are based primarily on employees' annual salary. Sole proprietors often mix their personal finances with the business's, and therefore it is not always easy to determine what a proprietor's annual salary is. You must determine your approximate monthly income and list this on the application. Sole proprietors in Arizona are rated with a minimum of $600 income per month and a maximum of $3,920 per month, as of January 2011. The insurer will audit you periodically to ensure it is collecting appropriate premiums for your income level.
Benefits
Even if you have a health insurance policy, insuring yourself with workers' compensation provides you some benefits. Workers' compensation policies carry no stated maximum limit for medical benefits and do not carry a deductible or coinsurance charges, whereas health insurance does charge out-of-pocket money and has a maximum benefit. Additionally, workers' comp can provide lost income if your injury prevents you from operating the business, and a death benefit to your survivors if necessary.
