Workers' compensation insurance is a crucial aspect of protecting both employers and employees in the workplace. Suppose an employee gets injured on the job. Workers’ compensation insurance provides coverage for medical care and a percentage of wage replacement for injured workers. However, only some businesses need a traditional workers' comp policy with full coverage. A "ghost policy" may be a more cost-effective option for some companies. In this article, we'll look at a workers’ comp ghost policy and explore the circumstances under which a business might need one.
A Workers' Compensation Ghost Policy – What Is It?
A workers' comp ghost policy is a workers' compensation insurance policy that at first glance, does not provide any coverage for a business with no employees other than the owners, who are exempt. It is usually just enough to meet a contract’s requirements by providing a certificate of insurance. It's designed for businesses with no employees, such as a sole proprietor (typically exempt from WC laws) or one that only uses subcontracted labor with their own workers' compensation insurance policy. This policy is called a "ghost" policy because it provides proof of workers’ compensation coverage for the business but does not cover any employees. The Employers’ Liability limits on a ghost policy are the same as required by statute but can be increased. It is a more cost-effective option for small business owners who need to evidence workers' comp insurance but do not need a policy.
Is it Legal?
Small business owners with no employees may be interested in learning whether workers' comp ghost policies are legally permitted in their state. This is because many sole proprietors or exempted partners, member, or officer want workers' comp coverage but may find the premiums for a traditional policy too high. A ghost policy could be a cost-effective alternative if permitted in their state.
What is the reason for the existence of workers' comp ghost policies?
Workers' comp ghost policies exist to provide an affordable and practical solution for small business owners who are exempt from coverage but require workers' compensation insurance for a contractual obligation and do not have any employees or only hire subcontractors with their own coverage. To cover the owner on a workers’ compensation policy can be prohibitively expensive in certain industries. On the other hand, a ghost policy offers minimal coverage, typically just enough to meet a contract requirement. This makes it a more cost-effective option that allows business owners to comply with the law while avoiding unnecessary expenses. However, if a business hires an employee during the policy term, the company must be aware of the payroll audit coming at the end of the policy term. Any payroll paid during the year will be audited and charged a workers’ compensation premium.
What exactly does a workers' comp ghost policy cover?
A workers' comp ghost policy provides coverage for the business only and does not cover any actual employees. Therefore, it is essential for business owners who have employees to obtain a traditional workers' compensation policy with adequate coverage.
The Benefits of a Workers' Comp Ghost Policy Include
There are benefits to obtaining a workers' comp ghost policy. This policy can be an affordable and practical solution for small business owners who are lawfully required to have workers' compensation insurance but no W2 employees. This section will explore the advantages and disadvantages of a workers' comp ghost policy, including cost-effectiveness, compliance with state laws, protection for business owners, and proof of insurance.
Cost-effectiveness
A ghost policy is often less expensive than a traditional workers' compensation policy, making it a more affordable option for small businesses without employees or with subcontractors who have their own coverage.
Compliance with state laws
Some states require businesses to have workers' compensation insurance, with one employee. A ghost policy helps companies meet this legal requirement without incurring additional costs to cover the owners who opt to be exempt (not covered).
No protection for business owners
A ghost work comp policy doesn’t provide business owners’ workers’ compensation coverage since the owners must prove that they are exempt from coverage to get a ghost policy.
Proof of insurance (sort of)
A ghost policy provides proof of coverage, which may be required when applying for certain licenses or bidding on contracts. While it may demonstrate to potential clients that the Business is insured, the clients would be disappointed to know the owners are not covered under the policy. However, the certificate can indicate that any proprietor, executive, partner, officer, or member is excluded from coverage when issued correctly.
How can I obtain a quote for a workers' comp ghost policy?
Suppose you're a busy business owner and need a workers' compensation quote; when ready, request a quote from InsuranceAdvisor.com. The process is quick and straightforward, taking less than 10 minutes to complete.
Many insurance companies do not offer workers’ compensation ghost policies, though a few do. If you plan to go this route, ensure you are ready for an audit showing no payroll and no sub-contracted work unless you have the sub’s workers’ compensation certificate of insurance on file. If not, your company will foot the bill for an uninsured sub’s work comp coverage on your audit.