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Workers’ Compensation and Ghost Policy

What is a Workers’ Compensation policy?

For a better understanding of what a ghost policy is, let us first understand what a workers’ compensation insurance policy is. Workers’ compensation is a type of insurance policy that provides wage replacement and medical benefits to employees injured while doing their job. The employees in return will waive his rights to sue his or her employer for any form of negligence on their part. Workers compensation policy is primarily based on payroll and the type of risk of the contractor/company is exposed to.

What is a Ghost Policy?

A ghost policy is a type of workers compensation insurance policy for contractors with no employees on their payroll, therefore providing zero real coverage. It is referred to as a ghost policy because there are no employees hired by the business to be covered under a workers compensation policy.

Contractors normally purchase a ghost policy because most projects require proof of a workers compensation policy either by the project manager or state law. This is mandatory in order to ensure that, in the event of the subcontractor hiring an employee, they will be able to provide coverage for the employee.

You may ask, so if there is no employee on payroll, why do I need to have a ghost policy?

If a subcontractor bids for a project and gets the job, the general contractor will require him to provide their own workers compensation policy. In order to secure the job, the subcontractor must provide a certificate of insurance indicating workers’ compensation coverage or else they will lose the project, regardless of whether or not they have employees on their payroll. Ghost policies are only recommended to contractors who work 100% independently and have their own coverage, yet are required to show proof of workers’ compensation insurance.

It is important to understand the type of policy provided by a subcontractor prior to hiring. If the subcontractor is covered with a ghost policy and not workers compensation, any hired employees will not be covered for medical expenses or wage replacements if injured on the jobsite. If your contractor is covered with a ghost policy, not a full workers compensation policy, it is essential that you confirm with each new employee that they are providing their own liability insurance.

State Requirements and Limitations

Workers compensation needs vary from contractor to contractor, as well as from state to state. Most states require contractors to provide a workers compensation policy, however only certain states accept ghost policies as a fulfillment to this requirement. Regardless of your state’s requirements, if you are a contractor who regularly employees subcontractors or other employees, it is mandatory to obtain a full workers’ compensation policy in order to provide coverage and benefits for your employees in the event of an accident.

Since the price of a workers’ compensation policy is based on payroll, ghost policies are the most affordable type of workers’ compensation policy in the market and therefore easily abused. In the event of an accident, it is imperative that your workers have adequate coverage; without sufficient workers compensation, you could be personally held responsible for wage losses and medical expenses.

List of states and Ghost Policy availability

For the list of states and ghost policy availability, please refer to the table below. For states where ghost policy is not available, we always have the option for you. Workers compensation ghost policy may not be an easy type of policy to find and not every insurance agent is willing to do the work for you. This list is constantly changing however as some carriers may offer coverage to various class codes. In any case give us a call at 855-340-1099 and we can check for you. We will be able to give you updated information and have additional low cost solutions to meet your workers’ compensation needs.

Ghost Policy Available Ghost Policy Unavailable
Alabama (AL) California (CA)
Alaska (AK) Colorado (CO)
Arizona (AZ) Delaware (DE)
Arkansas (AR) Hawaii (HI)
Connecticut (CT) Idaho (ID)
Florida (FL) Kentucky (KY)
Georgia (GA) Louisiana (LA)
Illinois (IL) Maine (ME)
Indiana (IN) Maryland (MD)
Iowa (IA) Massachusetts (MA)
Kansas (KS) Michigan (MI)
Mississippi (MS) Minnesota (MN)
Missouri (MO) New Jersey (NJ)
Montana (MT) New York (NY)
Nebraska (NE) North Carolina (NC)
Nevada (NV) Oklahoma (OK)
New Hampshire (NH) Oregon (OR)
New Mexico (NM) Pennsylvania (PA)
North Dakota (ND) Rhode Island (RI)
Ohio (OH) Tennessee (TN)
South Carolina (SC) Texas (TX)
South Dakota (SD) Utah (UT)
Vermont (VT) Wisconsin (WI)
Virginia (VA)
Washington (WA)
Washington DC
West Virginia (WV)
Wyoming (WY)

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Avatar for John Brown
Written by: John Brown
John has more than 25 years of experience in the insurance industry. He grew from a star insurance producer to owning one of the largest agencies in the country; he's a reference regarding contractor's insurance, commercial insurance, and builders' risk insurance.