A ghost policy is a type of workers’ compensation policy issued for a business when there are no additional employees of that business besides its owners, who are eligible to be excluded from a workers’ comp policy.
A ghost policy usually comes up in situations where a customer asks their service providers and contractors to provide a workers’ comp certificate of insurance before doing business with them. Sometimes, a business without any employees receives this type of request from a potential client and has to have the proof of insurance in place to move ahead with the transaction.
Notably, businesses without employees are not statutorily required to carry workers’ comp coverage in most states, explained Brenna Lemmon, workers’ compensation underwriting director at RIC, a division of Worldwide Facilities. She outlined the key criteria for obtaining a ghost policy.
“All business owners and officers need to be eligible to elect exclusion from workers’ compensation coverage in accordance with their state’s workers’ compensation act,” said Lemmon, adding that they also shouldn’t have any employees and do not intend to hire employees during the policy period. The business owners and officers should also not be making payments to uninsured subcontractors.
To move forward with obtaining a ghost policy, workers’ comp clients need to know that most ghost policies are issued through a state’s insurance fund or the NCCI Assigned Risk Pool, and this policy is solely intended to allow a business to get a certificate of insurance showing proof of workers’ comp coverage, among a few other important details.
“Insurance companies do not issue ghost policies with the intent of paying out medical or indemnity benefits since the coverage is secured with the understanding that no individuals qualify for these benefits,” said Lemmon. “Additionally, ghost WC policies are audited. If the audit determines there is additional exposure, the business owner will owe additional WC premium.”
The calculation of premium for a ghost workers’ compensation policy follows the same method used for policies issued to businesses with employees. According to Lemmon, payroll is multiplied by the applicable classification rate to determine the base premium of coverage.
“Every workers’ compensation policy also has a minimum premium that is assigned based on the business operations,” she added. “The minimum premium is the least amount an insurer will accept to issue the coverage. When there is no payroll under a workers’ compensation policy, the policyholder will pay no less than the policy minimum premium. All ghost policies are subject to the minimum premium assigned by the insurance company.”