What is a Ghost Policy?

Ghost Policy Quote

A “Ghost Policy” is a term used for a Workers Compensation policy with zero employees, zero payroll and an excluded owner.

You might ask “Well, who does a Ghost Policy cover then?”. The simple answer is no one, but it does still have a purpose.

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In most states, if an employer has a workers compensation policy, all employees (1099 or W2) are automatically covered on that policy unless they have their own policy. To avoid having to cover and pay for all of those employees, the employer may require the employee to carry their own policy. If that employee doesn’t have any helpers or employees of their own, they would get a workers compensation policy with zero payroll and employees and then exclude themselves to lower the cost, which now makes it a Ghost Policy.

One of the most common examples of this is in the construction industry. A general contractor that’s building a house would likely have dozens of subcontractors they use throughout the build. Each of these subcontractors is, according to workers compensation law in most states, considered employees and would fall on the general contractors policy, even if they’re 1099, which could cost tens of thousands of dollars per year. In reality, each of these subcontractors is really its own little business, many of which consist of just one person. This is why the general contractor would require each subcontractor to carry their own policy, which now means they don’t have to be included on the general contractors policy.