Thursday, March 25, 2010

The Ghost Policy - A Workers Compensation Sham!

What is a workers compensation ghost policy? Is it something you can see on the next episode of the "Ghost Whisperer?" Not really, read on!

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:

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!


  1. J&L is a leading risk management consulting firm. Our consultants are experts in workers compensation reserve reviews, premium analysis, and policy audits. We can help you cut costs by reducing your insurance budget.

  2. Yes, but what about a company, contractor, with no employees. We have only 2 "shareholders" in the LLC. We are a small trucking company, husband/wife team and we are looking to write a contract to do some freight relocation from North Carolina to California and back. The company in North Carolina is requiring that we carry a workman's comp policy for myself and my wife. In florida, because we are the owners and we have no employees, we are exempt.

    With the conditions as described above, why would a workman's comp "ghost policy" not be the way to go. We cannot afford a full blown workman's comp policy that isn't worth the paper it is written on since we could never benefit from the policy as the business owners.

    I believe that the "ghost policy" is just exactly what we need...just to secure a "certificate of insurance".

    I can be contacted at the blogs or at the email address below if you have another idea.

    Art Wayland/912 Truck

  3. I completely disagree. We are a very small construction company and have no employees. We have workman's comp and have chosen to exclude my husband and myself from it. Why? Because the guys who are independent contractors that occasionally work with and for us may not have insurance. Just because someone doesn't carry their own insurance (it's not required by law, remember, for those who don't have employees) doesn't mean they aren't talented or that we don't want to work with them. However, if they get hurt on our job, we will be liable for those expenses. Also, a customer never wants this to come back on them. So if we weren't insured and the sub decided to sue the homeowner because it occurred at their home, that would be a mess and entirely unprofesisonal on our part. Is workman's comp a good idea for small companies that don't have employees? YES. And if you can actually manage to hire independent contractors and keep certs on file for each one of them, then more power to you... Your workman's comp bill will be as low as possible. And you are keeping your customers happy, too.

  4. A ghost policy shouldn't be viewed as a "sham" but as a protection device. True, in most jurisdictions, a sole proprietor doesn't fall within the WC law. A corporate officer, member of an LLC or partners do, unless they file an exclusion.

    The issue is who is defined as an employee under WC /Labor Commissions nationwide. Hiring a sub who is then under your direction and control, who works your set hours, who doesn't work for anyone else, who uses your tools,transportation and materials, and who doesn't carry his own worker's compensation policy can very likely be deemed by the court to be your employee. I doesn't matter whether they are paid on a 1099, the contract describe "for money or other renumeration". They can be working off a debt - that is renumeration.

    What if the sub falls off a ladder, and they are in the hospital, no health insurance, who's paying for the expenses and lost wages? The commercial comes on the TV that asks whether you've been hurt at work, and to call the law office of so-and-so attorney? That attorney is going to try and prove a employer-employee relationship. No ghost policy, no coverage. What is the statutory benefits the deemed "employer" is required to pay? What sort of fine is the deemed employer subject to? What does a defense attorney cost in the meantime? How much is a ghost policy premium to cover yourself, even with an subsequent audit for the payroll basis for the injured sub?

    How much is a typical ghost policy? $1,000? Consider it not only a cost of doing business, but there to protect you from potentially hundreds of thosands of dollars in dollar-for-dollar medical expenses, lost wages, rehabilitation expenses, funeral expenses to be paid out at their statutory limits, and having a "dependent" until that injured person no longer requires medical attention and is no longer disabled and can return to work.

  5. Workers compensation must be taken seriously by everyone as it is our social responsibility that if some one get injured while working his family and he can live a good life.

  6. Ha Ha,, nice phrase,, "The Ghost Policy". Exaclty, workers compensation must not be underestimated and contractors insurance too not be ignored. Contractors Workers Compensation Insurance California

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  8. The real problem here is that insurance companies are getting double payment. As a sole proprietor you must carry health insurance under the new Obamacare or be fined. In addition, you must carry workers comp insurance to cover if you fall while out on a contract job.
    The entire thing is set up so you pay twice for the same DAM THING. It is not enough that you pay stupid high rates for health insurance that covers 50% of your accident, but in addtion you are expected to pay workers comp insurance at super high rates to cover you at your work site. It's all a ploy to suck money out of people from multiple angles. MONEY MONEY MONEY. And who cares if you have a ghost policy....LIE when you get hurt and say it happened at HOME and use your health insurance to pay for 50% of it.

  9. In addition, who the hell will pay you the big money for your contract you will charge for as a sole proprietor so you can pay for your health insurance and your workers comp insurance as well.
    Now make it more interesting. Join my wife in as a sole proprietor husband wife team. Now my small business pays for two health insurance bills and two workers comp bills every month to make me legitimate. I now have to charge about $125 per hour to survive in business at a base level. Funny but noone wants to pay me to paint their bathroom at $125 per hour. Thus the END OF THE MOM AND POP MIDDLE CLASS. They got what they wanted in the end. The corporation rakes in billions, the middle man is gone and everyone else works for $10 per hour.

  10. I think that is what they call SLAVERY in the end

  11. This maybe a dumb question, but why don't you just sign a waiver stating that under no condition will customer be held liable for injury etc? and then forget about the ghost policy altogether

  12. You guys abolish it real straightforward for all the oldsters out there.
    New York Workers Compensation Insurance