Ghost Policy for Workers' Comp

What is a Ghost Policy for Workers' Comp?

January 17, 2024
Mordechai Kamenetsky

As silly as the name may sound, it’s not a Halloween costume. A ghost policy for workers’ comp is the minimum workers' compensation policy available. It's designed for situations where the business owner is exempt from needing coverage but still requires proof of workers' comp insurance. 

It’s important to note that a ghost policy is a policy in name only without including actual coverage. So if it doesn’t offer any coverage, what’s the point of it?

This type of policy is often bought by individual contractors who need to demonstrate they have workers' compensation to win a contract or to meet state requirements, despite not having any employees.

Why opt for a Ghost Policy?

There are several scenarios where a ghost policy might be the right fit:

State Requirements

State Requirements: 

Some states require that every business, regardless of size, must carry workers' compensation insurance. A ghost policy satisfies this legal requirement without the expense of a full policy.

Contractual Obligations

Contractual Obligations: 

Potential clients may insist on proof of workers' comp insurance before hiring you to limit their own liability in case of an accident. A ghost policy allows you to provide this proof without the cost of traditional coverage.

Subcontractor Requirements

Subcontractor Requirements: 

As a subcontractor, you might need to show a certificate of insurance to work on a project. A ghost policy can provide this certificate, even if you're an independent contractor without employees.

What should you know about Ghost Policies?

While a ghost policy can be a useful tool, it's important to note that it does not offer actual insurance coverage. It's a policy in name only, designed to fulfill legal or contractual obligations.

It’s like a legal loophole and will not give any protection in case of an accident. 

If you're considering a ghost policy, make sure you're also adequately covered by other forms of liability insurance appropriate for your line of work.

How are Ghost Policies priced?

Ghost policies are typically priced as minimum premium policies. Since workers’ comp rates are based on payroll figures and these policies do not include payroll at the time of issuance, they are less expensive than average policies covering employees. 

Payment is usually required upfront, without the option for installment plans. Additionally, these policies typically undergo auditing to verify that there was no payroll paid out to employees, ensuring the terms of the policy are met.

Who uses Ghost Policies?

Ghost policies are commonly utilized by:

  • Contractors with no employees who need proof of insurance for jobs that require it, such as HVAC, plumbing, home inspection, electrical, or landscaping work.
  • Subcontractors who want to work on construction projects but prefer not to pay for a full workers' comp policy. It offers a level of protection for the general contractor and enables the subcontractor to bid on more significant contracts.

Should you consider a Ghost Policy?

If you're self-employed and don't have employees, a ghost policy might seem like an attractive option. However, it's important to weigh the benefits against the risks. While it fulfills the requirement to show proof of insurance, it doesn't provide any actual coverage for you as the business owner.

Kickstand Tip
Kickstand tip:

For comprehensive protection, it may be smarter to invest in a legitimate workers' comp policy that covers medical expenses and lost wages if you're injured on the job. There are affordable options available that can provide the security of a traditional policy, potentially at a cost comparable to a ghost policy.

How do you obtain a Ghost Policy?

Most standard insurance carriers are hesitant to issue ghost policies due to the lack of payroll or minimum premium typically associated with workers' comp accounts. However, it is still possible to acquire a ghost policy through certain providers who understand the specific needs of small businesses and independent contractors.

Need a policy? Get started today!

Understanding what a ghost policy for workers' comp entails is crucial for small business owners and independent contractors. While it may serve as a solution for proof of insurance requirements, it's important to consider all aspects and potential risks involved. 

If you're looking to satisfy state regulations or client requirements with a workers' comp policy, or if you're exploring your options for coverage, our instant quoter can provide you with a fast and accurate estimate tailored to your needs. Don't leave your business exposed; get a quote today and ensure you have the right protection in place.

Mordechai Kamenetsky

Mordechai Kamenetsky, co-founder and lead agent of Kickstand, is recognized as an expert in workers' compensation. He is passionate about helping small businesses manage risks and lower their workers' comp costs. In his articles, he educates readers and clients on the intricacies of workers' comp insurance.

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