As a small business owner, you may need to provide a workers’ compensation insurance certificate to get a new client or meet your state’s requirements. If you don’t have any employees, there are various options to get your workers’ compensation insurance certificate, and one of them is a workers’ comp ghost policy.
It offers a quick and affordable option to obtain an insurance certificate upon request. But before you purchase it, you must check to ensure your state allows it. Prior to deciding if this type of insurance is the perfect fit for your business, you’ll need to understand what it is, whether it exposes you to any risk, and if you qualify to own it. So what is workers comp ghost policy? Let’s learn more about it and its main characteristics.
What is a Workers’ Comp Ghost Policy?
A workers’ comp ghost policy is usually sold just like standard workers’ compensation liability coverage. However, important differences exist between these two types of policies. A workers’ comp ghost policy, when used independently, doesn’t cover any employee or the business owner. In fact, it does not cover anyone or provide any benefits. It simply acts as evidence of workers’ compensation insurance for clients who request it or states that legally require it. A workers’ comp ghost policy is simply designed and created to help the self-employed, individual subcontractors, or small business owners meet state requirements, secure a job or a client, or do business with a vendor
In some states, a workers’ comp ghost policy can be used to meet the vendor’s, client’s, or contractor’s insurance certificate requirements. Again, a ghost policy does not provide any tangible or actual coverage. However, some insurance service providers can bundle the policy with an accident-only plan to offer low-cost insurance coverage.
Who’s Eligible for a Workers’ Comp Ghost Policy?
In order to buy a workers’ comp ghost policy, you must be a business owner without employees and no payroll (apart from the owner). For instance, you can be self-employed, or your business can be a single-owner S corporation, a single-member limited liability company, or a sole proprietorship without contractors or employees. Additional basic requirements include:
- The holder of the policy must be between 18 and 65 years old.
- The policyholder must have a Social Security number.
Since the owner of the business carries the responsibility for all the associated expenses and liabilities, this type of insurance policy is the perfect option for low-risk jobs like accountants. Under certain laws, small business owners could be held liable for all medical expenses if they hire a person who gets hurt on their property, even if they have a workers’ comp ghost policy certificate.
In some states, the law requires any employer, including those in the construction industry, to have workers’ comp insurance, even if they have only one employee. That means you can’t file for a workers’ comp exemption if any of these conditions exist:
- You have a C-39 roofing classification
- You hire help in a way that is subject to the state’s workers comp laws
- The Responsible Managing Employee qualifies for your business license
What Does a Workers’ Comp Ghost Policy Cover?
A workers’ compensation ghost policy provides no real insurance coverage. It’s an affordable policy designed with sole proprietors, independent contractors, or partnerships in mind. The structures of these businesses do not have any employees.
However, the people they work with may need them to provide proof of workers’ compensation insurance. These policies are usually valid for a period of twelve months. A ghost policy is simply a minimum premium policy. It’s based on the yearly payroll. The payroll is multiplied by the classification rate to obtain the base coverage premium.
Since there’s no payroll, the policy doesn’t have a rating basis. As a result, it does not cost as much as the average policy that covers workers and is only subject to the lowest premium that the state or insurance provider assigns. This policy type does not provide any actual insurance coverage, which is why it’s known as the “ghost” policy.
Does a Workers’ Comp Ghost Policy Expose Your Business to Any Risk?
If your business has employees, a workers’ comp ghost policy shouldn’t be an option. Obtaining this type of insurance policy in such a case constitutes fraud and will have huge consequences for the owner of the business down the road. Also, it’s a massive risk for workers because they will not have any protection if they get hurt while on the job.
Self-employed individuals may also be on the better side by signing themselves up for a valid and legitimate workers’ compensation policy instead of choosing a ghost policy. That way, they’ll get coverage for their missing wages and medical expenses if they get hurt while on the job.
Final Thoughts
From what a workers’ comp ghost policy is and who’s eligible to what it covers and whether it exposes your business to any risk, this guide has discussed almost everything about this policy type. It’s the perfect time to decide whether it’s the best option for you and your business.
