A ghost policy is typically a workers compensation insurance policy sold by an insurance agent to a business owner, usually a contractor, who has no employees and has elected, if allowed to do so in his state, to not include himself within the policy coverage. Most times these policies are issued with one thing in mind:
- so the business owner can secure a certificate of insurance.
Let me recap, a business owner buys a workers comp policy, has no employees and excludes himself from coverage....hummm, sooo....if no one is covered by the policy...why buy it? Usually so the business owner can give that certificate of insurance to someone he's working for. But wait a minute...there's no one covered by that insurance policy right? Right! So...the certificate of insurance is worthless, right? Right! Why do it? It's usually about the money.
Workers compensation insurance is expensive and the purchase of a "ghost policy" usually falls below the minimum premium charged by the insurance company or allowed by the state. Let's say the minimum premium is $900 and for the business owner to include himself within the coverage his premium would be $2,200....are you starting to get the picture?
So why is this such a bad thing? To start with, in my opinion, it's a sham! Employers who hire subcontractors to perform work for them will require the subcontractor to provide them with a certificate of insurance, proof that workers compensation coverage is in place. This is done to protect the general contractor or employer from work related exposures associated with injuries sustained by the subcontractor or his workers. In other words, if the subcontractors workers are injured on the general contractors job then the subcontractor's workers comp policy would take care of his workers. In absence of a valid workers comp policy, the general contractor may be responsible for the subcontractor's workers. Oh yea...the general contractors insurance company would also be happy to charge him for those workers comp exposures generated by the sub, whether a claim occurred or not!
So could that business owner who bought a workers compensation ghost policy but did not include himself in the coverage make a claim against the general contractors policy, yep.
There's plenty more on this topic...but for now lets just say a workers comp ghost policy is in no one's best interest!
Hope this helps you out!