Can You Get a Loan on Workers’ Comp?

Workers’ compensation systems are designed to provide financial and medical benefits to employees who suffer injuries or illnesses arising out of and in the course of their employment. While these benefits aim to cover medical expenses and lost wages, the process of receiving full compensation can often be lengthy and complex. Injured workers frequently face immediate financial needs, such as daily living expenses, while waiting for their workers’ compensation claim to resolve. This article explores the financial options available to individuals seeking funds against their future workers’ compensation payments to bridge these gaps.

Understanding Workers’ Compensation Benefits

Workers’ compensation benefits typically encompass several categories designed to support an injured worker through their recovery and beyond. Medical care benefits cover all reasonable and necessary medical treatment related to the work injury, including doctor visits, hospital stays, prescriptions, and rehabilitation. These costs are generally paid directly by the workers’ compensation insurer to the healthcare providers.

Another significant component is temporary disability payments, which provide wage replacement for the income lost while an employee is unable to work due to their injury. These payments are usually a percentage of the worker’s average weekly wage, often around two-thirds, and are paid periodically, such as weekly or bi-weekly. This periodic disbursement, rather than a single upfront sum, can create financial strain for individuals facing immediate and ongoing expenses.

For injuries that result in lasting impairment, permanent disability benefits may be awarded, either as a lump sum or through structured payments. Vocational rehabilitation services might also be provided to help injured workers return to the workforce, potentially in a new role, if they cannot resume their previous job.

Funding Options Against Workers’ Compensation

Traditional personal loans from banks or credit unions are generally not available against workers’ compensation claims. This is because the outcome and final value of a workers’ compensation claim can be uncertain, making it difficult for conventional lenders to assess the risk involved. Instead, specialized financial products, often referred to as workers’ compensation advances or pre-settlement funding, have emerged to address this specific need.

These financial options are typically non-recourse cash advances provided by specialized funding companies, not traditional lending institutions. A key characteristic of these advances is that repayment is contingent upon the successful resolution of the workers’ compensation case, meaning the funding is repaid only if the claim results in a settlement or an award. If the claim is ultimately denied or lost, the injured worker generally does not owe the funding company anything.

The amount of funding provided is based on the estimated value of the future workers’ compensation settlement or award. Funding companies assess various factors, including the severity of the injury, the clarity of liability, and the anticipated medical costs and lost wages, to determine this estimated value. These advances provide immediate funds to injured workers awaiting claim resolution, helping cover living expenses or other financial obligations.

Applying for Workers’ Compensation Funding

Seeking workers’ compensation funding requires a structured approach and the compilation of specific information and documents. A fundamental eligibility criterion for most funding companies is that the applicant must have an active workers’ compensation claim. Furthermore, many funding providers prefer or even require that the injured worker be represented by an attorney, as legal representation can streamline communication and provide a clearer path to claim resolution.

Before contacting a funding company, it is beneficial for applicants to gather all relevant details about their injury and claim. This includes comprehensive information regarding the nature and extent of the injury, medical records documenting treatment and prognosis, and the current status of the workers’ compensation claim. Details about lost wages and any temporary disability payments being received are also important for the funding company’s assessment.

The application process typically begins with contacting one or more funding companies. Applicants will then need to provide necessary documentation, which often includes medical reports, accident reports, and information about their workers’ compensation attorney. Funding companies commonly request authorization to communicate directly with the applicant’s attorney to understand the case’s merits and potential value.

Key Terms of Workers’ Compensation Funding

Once an application for workers’ compensation funding is approved, the terms of the agreement detail how the advance is structured and repaid. The amount of funding provided is typically a percentage of the anticipated settlement value of the workers’ compensation claim, rather than the full estimated amount. Funding companies assess the case’s strength and potential value to determine a safe advance amount, often ranging from 10% to 20% of the estimated net settlement.

The costs associated with these advances are generally not structured as traditional interest rates, but rather as funding fees, administrative charges, or periodic charges that accrue over time. These charges can be significant and are often calculated as a flat fee or a percentage that compounds monthly, sometimes referred to as a “multiplier.” For example, a funding agreement might state a monthly charge that increases the total repayment amount by a set percentage each month the advance is outstanding.

Repayment of the advance, along with all accrued fees and charges, occurs directly from the final workers’ compensation settlement or award. When the case settles or an award is granted, the funding company is typically paid directly from the proceeds before the remaining funds are disbursed to the injured worker.