Workers’ Comp Ghost Policy
A workers’ comp ghost policy exists purely for proof of insurance and provides no actual coverage. It’s used by individual contractors who need to demonstrate they have workers' compensation coverage to win a contract or to meet state requirements, despite not having any employees.
What is a Ghost Policy for Workers’ Comp?
A ghost policy is a minimum premium workers’ comp policy for a one-person business. However, since the company owner is exempt from the policy, it doesn’t actually cover anyone. It’s simply there to provide a certificate of insurance (COI) for workers’ comp without the cost of a full workers’ compensation policy.
Why do Businesses get a Ghost Policy?
A ghost policy is only useful if you don’t have employees and just need proof of insurance.
Here are common reasons why businesses opt for one:
State Requirements:
Some states require every business to carry workers’ comp, even if they have no employees. A ghost policy satisfies this legal requirement for sole proprietors and single-member LLC’s—without the expense of a full policy.
Contractual Obligations:
Clients may insist on proof of workers' comp insurance before hiring you to limit their own liability in case of an accident. A ghost policy meets this requirement without needing full coverage.
Subcontractor Requirements:
General contractors often require 1099 subcontractors to have workers’ comp. A ghost policy allows independent contractors to bid on jobs without paying for full workers’ comp.
Why do general contractors require proof of workers' comp?
Many general contractors insist that subcontractors provide proof of workers’ comp coverage—even though it doesn’t cover employees. This benefits the general contractor in two ways:
- The subcontractor can’t file a workers’ comp claim against the general contractor.
- The general contractor avoids paying workers’ comp premiums on the subcontractor’s wages.
Kickstand Tip:
Make sure your contract doesn’t require you to be included in the coverage. This is a common issue—especially for truckers who buy a ghost policy, only to realize their carrier requires full coverage.
How does a Ghost Policy work?
A ghost policy exists only on paper—it doesn’t provide actual workers’ comp coverage for business owners.
It only covers the business owner, and the business owner is exempt from coverage, so no one is eligible to file a claim. That’s why insurance companies charge only the minimum premium—there’s no risk of payout.
A ghost policy is audited at expiration to determine if there was any payroll. If payroll is found, the ghost policy becomes null and void.
Warning: If you hire workers during the policy term, the policy must be changed to a standard workers’ comp policy immediately.
What does a Ghost Insurance Policy cover?
A ghost policy covers no one and provides no benefits. It’s only for proof of insurance—not actual protection.
If you do have employees, you need a real workers’ comp policy to get medical and wage benefits.
What should you know about Ghost Policies?
While a ghost policy can be a useful tool, it's important to note that it does not offer actual insurance coverage. It’s like a legal loophole and will not give any protection in case of an accident.
If you're considering a ghost policy, make sure you're also adequately covered by other forms of liability insurance appropriate for your line of work.
Some carriers that offer ghost policies require that the insured sign documents to be formally exempted from workers’ comp. This involves completing the workers’ comp exemption process specific to their state. This ensures the policy is legitimate and complies with state regulations.
How much does a Workers' Comp Ghost Policy cost?
Expect to pay around $1,000 per year for a workers’ comp ghost policy—though the exact price depends on your state and industry. Since ghost policies don’t include payroll, they cost far less than standard workers’ comp policies.
Heads-up: Many carriers require the full annual premium upfront and don’t offer payment plans for ghost policies.
Who typically uses Ghost Policies?
Ghost policies are most common among:
- Independent contractors with no employees who need proof of insurance for jobs
- Subcontractors in construction, HVAC, plumbing, home inspection, electrical, and landscaping.
- Small business owners who qualify for a workers’ comp exemption but still need a COI.
Should you consider a Ghost Policy?
A Ghost Policy may be right for you if…
- You work alone and need proof of insurance for a contract or state requirement.
- You’re a 1099 contractor or subcontractor needing a Certificate of Insurance (COI).
- You qualify for a workers’ comp exemption but still need proof of coverage.
A Ghost Policy Is NOT right for you if…
- You want medical or wage benefits if injured on the job.
- You have employees.
- Your contract requires owner coverage
Kickstand tip:
For comprehensive protection, it may be smarter to invest in a legitimate workers' comp policy that covers medical expenses and lost wages if you're injured on the job.
How do you get a Ghost Policy?
Most insurance companies avoid ghost policies due to low payroll and premiums. But some providers cater specifically to small businesses and independent contractors, making it possible to get the coverage you need.
Need a policy? Get started today!
If you're looking to satisfy state regulations or client requirements with a workers' comp policy, or if you're exploring your options for coverage, our instant quoter can provide you with a fast and accurate estimate tailored to your needs. Don't leave your business exposed; get a quote today and make sure your business is protected!
Mordechai Kamenetsky, co-founder and lead agent of Kickstand, is recognized as an expert in workers' compensation. He is passionate about helping small businesses manage risks and lower their workers' comp costs. In his articles, he educates readers and clients on the intricacies of workers' comp insurance.
Workers' compensation insurance for contractors covers medical costs and lost wages for employees who get injured on the job. If you're a contractor, workers’ comp is probably your biggest insurance expense—but knowing how it works before you buy can save you from costly mistakes.
