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Ghost Policy | Workers Compensation

A ghost policy helps small contractors satisfy coverage requirements for general contractors.

Ghost Policy

What is a Ghost Policy?

A ghost policy is a workers compensation policy that is really not designed to provide actual workers comp benefits.  This type of policy is typically purchased by subcontractors who do not have employees and do not want the financial burden of including themselves for coverage.  A ghost policy typically satisfies the requirements of general contractors.  Not all states allow for ghost policies.

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Why Would I Need a Ghost Policy?

The most common reason for buying a ghost policy is to satisfy some requirement to provide a certificate of insurance to a general contractor or other company.  Generally, a small contractor will win a bid to perform work, but will be required to provide proof of coverage prior to starting the job.  The whole concept of a ghost policy is to ensure a sub-contractor has some sort of coverage in place in case they hire employees or another uninsured subcontractor to assist with a job..

There are a large number of small contractors and sub-contractors who do not have any employees and who do not want to pay for coverage for themselves.  A ghost policy is the cheapest way for contractors to get a policy.

How Does a Ghost Policy Work?

The term ghost policy refers to the fact that the workers comp policy basically provides not "real coverage".  It is a minimum earned policy whereas the owner(s) is excluded from coverage on the Acord 130 Form and there are no active or anticipated employers for the policy period.

A minimum earned policy is a policy that includes the standard state expense constant and the insurance companies minimum required premium for a policy.  This type of policy is usually significantly cheaper than a policy where the state required minimum owner wages are applied to a policy.

Here's a quick example:  Let's say you're a small carpenter in MO using class code 5645 with a rate of 12.00 per hundred.  The current minimum wages an owner can use in MO is $35,600.

Policy Type Premium Amount
Ghost Policy $750 - $1,000
Standard Policy ($35,600/$12) $4,272 + expense constant/fees
(35,600/100 x 12.00 = $4,272)

Benefits of a Ghost Policy

There are several other benefits to a ghost policy besides the obvious savings for the sub-contractor (or owner) buying the policy.  The first benefit is that the ghost policy satisfies the contract requirement and allows an agency to issue certificates of insurance on behalf of the insured. The second benefit is that the policyholder should have automatic coverage under the policy for any employees or uninsured subcontractors hired during the policy period. 

It is important to note that any additional employee wages or payments to uninsured subcontractors could result in additional premium due after a workers compensation audit is performed.

How Do I Purchase a Ghost Policy?

Like any workers compensation policy, a ghost policy is for a period of one year.  This type of policy should only be purchased with the intention of having no employees, no payments to uninsured sub's, and no payroll aside from the owner(s).  Ghost policies are subject to audit and if any additional exposure is determined the policyholder will be on the hook for the audit balance

Contact one of our Comp Specialists today at 888.611.7467 to learn more about our ghost polices and other insurance products and services.

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