Workers’ comp ghost policy

A ghost policy is a minimum premium workers’ comp policy for a one-person business. However, the company owner is exempt from the policy, so it doesn’t actually cover anyone.

As many individual contractors and solo business owners are normally exempt from workers' comp requirements, this type of policy is designed to help these types of business owners provide a certificate of insurance (COI) without having to pay for a full workers’ compensation policy.

A ghost policy is ideal for self-employed business owners with no employees who need to show proof of workers’ compensation insurance to either win a new contract or to satisfy a state's workers' comp requirement.

If you have employees or need workers’ comp coverage (not just a policy to meet a contract requirement), however, you’ll need a true workers’ compensation insurance policy — not a ghost policy. In fact, signing up for a ghost policy when you have employees could lead to serious legal and financial consequences for you and your company.

Not every solo business owner will need a ghost policy. Here are a few specific circumstances where it might make sense.

Some states require every business to carry workers’ compensation insurance — even if you don’t have any employees. A ghost policy will fulfill your requirements without having to buy a full policy.

You may run into a potential client who will only hire your company if you can show proof of workers’ comp insurance. If you already have general liability insurance and no one else working for you, you may not want to invest in a full workers’ compensation policy.

In this case, a ghost policy can help you win the contract.

Most general contractors require their subcontractors to provide their own business insurance. If you’re an independent contractor, a ghost policy can give you the certificate of insurance needed to win the job.

But remember, a ghost policy doesn’t offer any real insurance coverage, so make sure you have the right liability insurance for the work that you do.

Many states’ workers’ comp regulations allow certain types of businesses — like sole proprietors or one-person LLCs and S corps — to be exempted from their insurance requirements.

But, even if you are exempt, you may still need to show proof of insurance from time to time. A minimal ghost policy will fulfill that requirement while saving you money on premiums.

Certain businesses, like plumbers, electricians, and construction contractors, often need to show proof of workers’ compensation coverage — even if they’re a one-person business.

However, signing up for a full workers’ comp policy may not make sense for you — especially if you are able to cover your own medical expenses without insurance, or are at low risk of work-related injuries.

In that case, a ghost policy would allow you to provide proof of coverage and work the jobs you want.

Workers’ compensation ghost policies offer no real coverage for a minimum fee to meet legal or contractual requirements for your business.

But to get a ghost policy, you must meet two requirements:

• You must be the business owner.
• You can’t have any employees.

Since you, as the business owner, are exempt from workers’ comp requirements and you don’t have any employees, no one in your company qualifies for workers’ comp benefits under a ghost policy.

Your insurance company can charge you only the minimum required premium because they know they won’t have to pay out a claim on the policy — since no one is eligible to file one.

Before you renew your ghost policy each year, your insurance provider will audit your business to confirm that you still don’t have any employees. Most ghost policies only have a one-year policy period, which may make them an even more appealing option if your business only needs them to meet a contract requirement.

If you do hire an employee while you have a ghost policy, you should inform your insurer immediately. Your policy will likely have a temporary workers’ comp provision that will cover you until you purchase an actual workers’ comp policy.

If you need to hire an employee, a minimum premium workers' compensation policy may be a good fit. This type of policy sets your premium charges at the minimum premium (i.e., the smallest amount of money that an insurance company will sell to a business).

However, if you don’t disclose your employees, your insurance company could retroactively charge you an additional premium for the full workers’ compensation policy rate from the time you hired your first employee.

A ghost policy covers no one and provides no benefits. It only provides proof of workers’ comp insurance to fulfill the terms of a contract or meet your state’s business insurance requirements.

If you have employees and need real insurance protection, you should buy a full workers’ compensation policy for your small business.

The rules and regulations around small business insurance requirements are constantly changing, so be sure to check with your local and industry requirements before purchasing any policies. Additionally, if you work in multiple states, you'll need to abide by the regulations for each state.

It depends. While ghost policies are legally permitted in some states, they are often illegal in many others.

For example, certain contractors in California are required to carry workers' comp even if they do not hire any employees. A ghost workers' comp policy would not be sufficiently legal in this instance because ghost policies are not allowed in California. A small business owner who attempts to carry a ghost policy instead of a workers' comp policy could face consequences for being inadequately insured.

Because of the constantly changing nature of small business insurance requirements, it is recommended to actually carry a workers' comp policy rather than a ghost policy.

Not only will the actual policy protect you and your employees, but it will ensure total compliance should laws and regulations around ghost policies suddenly change in your state or region.

Examples of states that haven't explicitly banned ghost workers' comp policies include:

If you need proof of workers’ comp insurance but don’t have any employees, a ghost policy is a cost-effective option to consider. It can help you fulfill the terms of a contract or meet state requirements without paying a typical workers’ comp premium.

As each insurance carrier has its own requirements for writing a workers' comp policy, you may find that a ghost policy is one of the few options at your disposal to meet these requirements. However, ghost policies are also not available in every state and may not be offered by certain insurance carriers.

If you think a workers’ comp ghost policy may be right for your small business, speak with an insurance agent to discuss your options. They'll help you find the most affordable option for your small business, and you may be able to get a certificate of insurance in as little as a day.

Complete Insureon’s easy online application today to compare quotes for workers' compensation insurance and other types of business insurance coverage from top-rated U.S. carriers.

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