A “ghost” Workers’ Compensation policy, as it is frequently referred to, is when a business without any workers, other than its owners, receives a request from a potential client for proof of Workers’ Compensation Insurance, and needs to purchase a policy to satisfy the certificate of insurance requirement.
Ghost Workers’ Comp Insurance Is a Minimum Premium Policy
The premium for a ghost policy is calculated using the same approach used for Workers’ Comp policies provided to businesses with employees. It’s based on payroll, which is then multiplied by the classification rate to determine the base coverage premium. States maintain a minimum/maximum payroll that must be included in the rating of the policy. These limits will vary based upon the type of work being performed. If an owner excludes themselves from coverage, their “payroll” is subtracted from the calculation, however, they must sign an exclusion waiver at the time of establishing the policy, or their payroll will be included and this cannot be changed after the inception date.
Like all Workers’ Comp policies, ghost policies are audited at year-end. If the audit shows additional exposure, an additional premium will apply. For example, if any helpers are paid during the policy period, their respective “payroll” will be factored into the calculation of the term premium and if it is greater than what was projected, an additional “audit premium” will be due. Failure to pay any audit premiums can impact the ability of obtaining future coverage until such time as the audit premium balance is paid.
Workers’ Compensation insurance pays for medical expenses and replaces a portion of missing wages when a covered person is unable to work. For this reason, it is important that all contractors purchase Workers’ Compensation, whether they have any employees at the moment or not. If they were to employ a worker during the project without such insurance, the contractor may be responsible for the expenses and other related benefits personally.
*NOTE: The insuring agreement in a policy sets out the covered perils, assumed risks, and nature of coverage that the insurance company provides to its insured in exchange for the premiums paid. Thus, the terms and conditions of the policy will dictate whether coverage exists and the nature of any potential benefits.