A workers’ comp ghost policy is purchased by a company with no employees and where the owners are exempt from carrying workers’ compensation insurance for themselves. In most cases, business owners buy these policies because a potential client asks to see a certificate of insurance (COI), proving the business has a workers’ comp policy. The ghost insurance policy helps them gain contract work without having to pay premiums based on payroll.
Ghost insurance policies aren’t always easy to get, so we recommend working with a referral service like Commercialinsurance.NET. Once you submit your basic business information, a representative works to match you with the best carrier or broker for you.
How a Workers’ Comp Ghost Policy Works
A ghost policy works like any other workers’ compensation policy—it provides coverage for eligible employees who may get injured on the job. The difference with ghost policies is that they are written when there is no eligible employee; at the time the policy is issued, the only worker is deemed exempt because that person owns the company.
A ghost insurance policy enables business owners to get proof of insurance for jobs that requires it. If the business owner then hires employees, the owner must notify the workers’ compensation insurer about new payroll and nonexempt employees. A workers’ comp policy may also kick in if the business owner is deemed liable for injuries to a subcontractor he brought on to a job.
Insurance Fraud Risks for Ghost Policies
Ghost policies come with a lot of fraud risk because financially strapped business owners may try to get away with not having a full-fledged workers’ compensation policy. For example, assume a general contractor gets a ghost insurance policy stating that he is the only worker and is thus exempt from the workers’ compensation requirement.
However, in reality, he has three people on staff and has $100,000 in payroll costs each year. Payroll and work class are two important variables in determining an employer’s workers’ compensation premiums. By not getting a policy that factors in those variables, the business owner-turned-employer can generate a COI while not paying actual premiums for his employees.
If an employee is injured while working for the employer, the ghost policy would theoretically kick in. However, if the insurance carrier found out that the employer had not notified them of actual employees, it could open a fraud investigation.
Pro tip: Business owners should also be aware that workers’ compensation policies are audited every year. This gives their insurance carriers ample opportunity to determine if the business has employees on its payroll and potentially charge the business for the missed premium.
Who Needs a Workers’ Comp Ghost Policy
Most business owners know they need workers’ comp when they have employees, but they probably don’t think about the coverage if they’re a one-person operation. That said, a workers’ comp ghost policy isn’t for everyone. These policies are mainly useful to business owners who contract with other companies and whose clients request a COI. Additionally, licensing entities in some states may require proof of workers’ compensation insurance as well. The COI provides this proof of insurance, thus allows the business to meet the demands of clients and state regulators.
To be eligible for a ghost insurance policy, the business must have no payroll other than the owners and have no immediate plans to hire employees or subcontractors during the policy period. If employees or subcontractors are hired, the insurance carrier should be notified immediately. The ghost policy is subject to the same annual payroll audit as any other workers’ compensation policy.
Pro tip: If you’re a business owner who’s exempt from workers’ comp coverage, you need to know that health insurance typically excludes work-related injuries. That means you may end up footing the bill if you’re hurt on the job and don’t have self-employed workers’ compensation.
Where to Get a Workers’ Comp Ghost Policy
Not every insurance carrier who sells workers’ compensation insurance underwrites ghost policies. One option might be to try a referral service like Commercialinsuranc.net. It works with more than 200 carriers and brokers, many of which may offer a ghost insurance policy. However, most business owners need to go to their state workers’ compensation fund to obtain the required insurance and documentation.
States That Ban Ghost Policies
Ghost insurance policies are not in every state, mainly because of the inherent fraud risk that comes with them. There are currently 23 states where ghost policies aren’t available:
- New Jersey
- New York
- North Carolina
- Rhode Island
If you live in a state that bans workers’ compensation ghost policies and still need proof of insurance, you have to buy a normal workers’ comp policy with a premium based on your payroll. In some cases, you may need to obtain a minimum premium workers’ compensation policy. Either way, this should fulfill any contractual or licensing requirements you have, and you should have no problem getting a COI for proof of insurance. Talk to your insurance provider about your options.
How Much a Workers’ Comp Ghost Policy Costs
Workers’ compensation ghost policies are less expensive than traditional workers’ comp policies because you are not paying premiums based on payroll. Prices vary from state to state and are contingent on the type of work you do and the industry you are in. Pogo Insurance lists a sample annual rate in Virginia, Georgia, and South Carolina as starting at $958.
A ghost policy is a type of workers’ compensation policy with no covered employees and is obtained strictly for proof of insurance purposes. If you need a workers’ comp ghost policy, you can check with private carriers in your state to see if they have this option. Otherwise, you may be required to go to the state fund to obtain your insurance.