Ever heard the term ghost policy with regard to workers compensation insurance? Ever wonder exactly what it is?
A Ghost Policy is the term used to describe a type of work comp policy issued to individual business owners that really has not direct coverage value. Many insurance professional argue these policies are a sham, but I think they can be the best scenario for many small contractors and subcontractors who have no employees or subcontractors.
A ghost policy is a minimum earned premium policy which typically costs between $750 and $1000 annually depending on the state the policy is issued. The policy has no payroll calculated into the premium and excludes all owners from the policy. Hence the term “Ghost Policy”. The premium will vary by carrier and includes the state expense constant and their minimum premium amount required to administer a policy.
So why would anyone want a ghost policy?
While it seems self evident this type of policy is a waste of money, many small business owner may prefer a ghost policy over the alternative for several reasons: 1. A ghost policy enables a business owner to have a certificate of insurance issued, 2. A ghost policy can cost a fraction compared to a policy including the owner, and 3. A ghost policy should provide employer liability protection in the event an employee is hired or a payment is made to an uninsured subcontractor.
A ghost policy may be a good choice for smaller subcontractors who never have employees or make any payments to other subcontractors without insurance. Like any policy, a ghost policy is likely to be audited for any additional exposure at the end of each policy period.