What is a "Work Comp Ghost Policy"

So what is a “Work Comp Ghost Policy?”

The ghost policy’s purpose is to provide workers compensation insurance for a contractor or sub-contractor who has zero employees (“ghosts”).

The benefit is that an owner can exclude himself/herself from the workers comp policy, but therefore assuming all risks during claims.

Many jobs require proof of workers comp.

How to Buy a Ghost Insurance Policy?

A ghost insurance policy should only be bought by self-employed business owners with the following traits:

  1. no employees or no intent to hire employees during the policy period
  2. no payments to uninsured subcontractors
  3. zero payroll, aside from the owner(s).

Only a few private workers comp insurance companies issue ghost workerscomp policy insurance in select states.  However, most ghost policy coverage is issued through a state’s insurance fund.

Keep in mind that ghost policies are audited.  Therefore, if more exposure is found the business owner will owe additional workers comp premium.

In many instances, self-employed Entrepreneurs might be better to include themselves for a workers comp policy instead of buying a ghost policy.  The primary benefit is that you will actually have workers comp insurance in the event of an injury.

Ghost Policy Abuse and Fraud

The “ghost policy” is a cheap means for an company to obtain a certificate of insurance (COI) showing proof of work comp insurance. In reality, it is an workers comp insurance policy or contractor insurance that does not provide any actual benefits. It allows a company to pretend coverage exists when it really does not.

For example, just because a roofer shows you a certificate of insurance, it does not mean it actually has real protection for its employees. 

Some companies buy a “Ghost Policy” alleging either they have no employees (i.e. pay them under the table and off the books) or allege their workers are all sub-contractors, which is illegal given State and Federal definitions of who can be considered a true sub-contractor.

Thru buying a “Ghost Policy,” a company is able to show proof of work comp coverage (certificate)  while saving several thousands of dollars each year (depending on the company’s size and scope). 

Therefore, the “ghost policy” allows that company to make lower bids on projects than if it the company had a legitimate workers compensation insurance policy.  The company is exploiting its employees and puts that company’s finances and clients at much risk!  If one of the company’s employees is injured on a client’s property, the client could be held responsible for workers comp claim costs!