Workers Compensation Funding Loans Are High Risk Lending

A small but growing trend in personal injury liability cases is beginning to make an appearance in workers compensation claims, “lawsuit funding loans.” In a lawsuit funding loan, also known as “worker compensation funding”, a third party “lender” advances to the injured employee a non-recourse loan against their future settlement proceeds. 
Workers compensation funding loans are designed to provide the injured employee who is short on cash a quick lump-sum in exchange for the employee giving up a portion of their future settlement. The loan structure varies depending on the company providing the funding. With some funding companies, they loan 10% or 15% of the projected settlement, and charge interest at a high rate until they are repaid. Others provide the loan in exchange for a set percentage of the future settlement. (WCxKit)
The workers compensation funding companies look for claims where:

1.     the employee has received a disability rating, or the nature of the injury is such that the employee will definitely received a disability rating

2.      the entire settlement proceeds are paid to the employees attorney

3.      the state allows liens to be placed on the workers compensation settlement


Many people will wonder “why would the employee give up a substantial part of their future settlement for a relatively small loan, comparatively speaking?”   It goes back to human nature. In most states, the temporary total indemnity benefits are paid at 2/3 of the employees average weekly wage. For lower earning employees, two-thirds of their average weekly wage is less than they normally take home. If the employee does not alter their lifestyle and spending habits, they soon find themselves short of money, especially if they were living paycheck to paycheck before they got hurt.
Workers compensation funding companies, like payday lenders, prey on the employee who needs cash now. They will claim they are providing valuable assistance to the injured employee. Some of the workers compensation funding companies will not even call the money they are giving the employee a loan, they will refer to it as a “cash advance” or “pre-settlement funding." 
The workers compensation funding companies are in high risk lending, so they usually have some stringent guidelines to control who they will loan money to. Their guidelines will include:

1.      the injured employee must be represented by an attorney (so that the attorney will have control of the settlement funds and will honor their contact with the employee)

2.      they will only make loans in the states where the employee has the right to demand a cash settlement for their permanent partial disability or permanent total disability

3.      they will tell the employee that he/she does not have to pay the loan back if they do not receive a settlement (but they will absolutely not loan money on any claim of questionable compensability)

4.      reviewing all first report of injury, doctor reports, MRIs. CAT scans, surgical reports, x-ray reports, emergency room records and any other medical documentation available

The states where workers compensation funding companies are making loans include Alabama, Arizona, Arkansas, Connecticut, Delaware, Florida, Georgia, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Mississippi, Missouri, Montana, Nebraska, New Hampshire, New Mexico, North Dakota, Rhode Island, South Carolina, South Dakota, Tennessee, Vermont and West Virginia. The workers compensation funding companies do not make loans in the states where the employee and the employee's attorney receive separate checks. Therefore, the workers compensation funding companies will make loans in Michigan and Oklahoma if the retainer agreement between the employee and the attorney specifies the entire settlement will be sent to the attorney, who will then in turn write the injured employee a check.
In most cases, the workers compensation funding company is unknown to the employer or the insurance company. It is a secret between the employee, the employees attorney and the loan company. The workers compensation funding companies will tell the employee that by taking advantage of their service, the employee is not financially pressured to settle their claim for less than it is worth.   However, like with the payday loan companies, the employee eventually will spend the entire loan amount, and will be back at the workers compensation funding company asking for another loan……ugh, cash advance. 
There are a couple of problems that can develop when an employee utilizes a workers compensation funding company. They are:

1.      The settlement value turns out to be lower than the funding company had originally anticipated. The attorneys fee plus the funding company loan and fees leave nothing or a small amount for the injured employee. This results in the injured employee refusing what would otherwise be a fair settlement from the insurance company.

2.      The employee's medical care takes longer than anticipated and the cash advance was in exchange for a percentage of the settlement. The funding company recognizes their return on their investment is being reduced and they began to pressure both the employee and the employees attorney to settle the claim.(WCxKit)


There is little employers can do about workers compensation funding loans. As the workers compensation funding company will tell the employee that the “cash advance” is none of the employers business, the employer will usually never know the employee has been taken advantage of by the funding company. When the employer does learn of the workers compensation funding loan, it is normally because the employee is in a position where he/she can no longer afford to settle the work comp claim for the claim's true value and the claim begins to vanquish.
Author Rebecca Shafer, JD, President of Amaxx Risks Solutions, Inc. is a national expert in the field of workers compensation. She is a writer, speaker, and website publisher. Her expertise is working with employers to reduce workers compensation costs, and her clients include airlines, healthcare, printing/publishing, pharmaceuticals, retail, hospitality, and manufacturing. See for more information.
Do not use this information without independent verification. All state laws vary. You should consult with your insurance broker or agent about workers comp issues.
©2011 Amaxx Risk Solutions, Inc. All rights reserved under International Copyright Law. If you would like permission to reprint this material, contact

5 Frequently Asked Questions about Payment of Indemnity Benefits

1.     Q: When and how long can an employee collect indemnity benefits? 
 A:   As long as the employee is medically unable to work, with limitations in some states on the maximum number of weeks.
2.     Q:  The employee is in jail (not related to the workers comp claim), can s/he still collect indemnity benefits? 
 A:   It varies by jurisdiction, but in most cases if the employee can still receive the necessary medical treatment to recover from his injury, he can still collect benefits while in jail until he is medically able to return to work. (WCxKit)
3.     Q:  The employee is taking his/her family on vacation, can s/he do that while drawing indemnity benefits? 
 A:   As long as the employee does not engage in any activity on vacation that will interfere with his medical recovery, and as long as the employee will not miss any medical appointments, then he can go on vacation in most jurisdictions.
4.     Q:   The employee is out of the country, can s/he still collect indemnity benefits?
 A:   If the employee is not treating for his/her medical condition, the workers comp adjuster should take the necessary steps to suspend temporary indemnity benefits until the employee returns to the country and resumes medical care. WCxKit If the employee has already reached maximum medical improvement, the permanent indemnity benefits would continue in most jurisdictions while the employee is out of the country.
5.     Q: The employee is working another job while collecting indemnity benefits from us, can s/he do that? 
 A:    No. If the employee is able to do similar work for another employer, s/he is no longer medically unable to work WCxKit and temporary indemnity benefits should cease immediately. A possible exception to this would be for PPD benefits where the employee is unable to resume a manual labor position with your company, but locates less strenuous employment with another company. 

  \Author Rebecca Shafer, J.D., President, Amaxx Risks Solutions, Inc. has worked successfully for 20 years with many industries to reduce Workers’ Compensation costs, including airlines, healthcare, printing/publishing, pharmaceuticals, retail, hospitality and manufacturing.  Contact:  or 860-553-6604.  
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Do not use this information without independent verification. ALL STATE LAWS VARY AND CHANGE; consult with your insurance broker or agent about specific workers' comp issues.
©2010 Amaxx Risk Solutions, Inc. All rights reserved under International Copyright Law. If you would like permission to reprint this material, contact 

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