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What Is Workers’ Comp Ghost Insurance and How Do You Get It?

Selfgood team, Marketing at Selfgood

Workers’ compensation insurance covers lost wages and the cost of medical expenses if an employee gets injured on the job.

All business owners in every type of business are required by law to provide workers’ comp insurance for every employee on their payroll.

Self-employed business owners, small business owners, and sole proprietors also have to follow workers’ compensation laws.

But what some independent contractors don’t realize is that they may need a version of a workers’ comp policy, as well — a version such as ghost insurance. If you work as an independent contractor or small business owner, a ghost insurance policy may be a good choice for you.

Here’s everything you need to know about workers’ comp ghost insurance, including what it is and how to get it.

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What Is a Ghost Policy?

A traditional workers’ comp policy provides financial protection if an accident occurs on the job. It protects your employees if they become hurt on the job site, while traditional liability insurance protects your business if that happens.

A workers’ comp ghost policy is a type of workers’ compensation policy, but it provides zero financial benefits.

Ghost policies don’t offer any real insurance protection. They don’t pay out benefits. All they do is prove that you have insurance.

To get a ghost policy, you must be a business owner or independent contractor that meets one of these criteria:

  • Has no employees
  • Only hires uninsured subcontractors

As the policyholder, you yourself are excluded from the policy coverage (even though no tangible coverage exists). So business owners are excluded from coverage, and since you don’t have any type of workers on your payroll, there’s no one else to cover.

A workers’ compensation ghost policy doesn’t provide coverage for anyone in any capacity.

Okay, we know what you’re thinking … Why would anyone that works for themselves buy a policy that doesn’t offer any coverage?

There are several reasons why:

Some States Require You to Carry Workers’ Comp Insurance

Some states require all business owners to carry workers’ compensation insurance.

A ghost policy is an affordable way to satisfy state law. It allows you to assume any personal damages for injuries you suffer while on the job, provided that you don’t have any employees on your payroll.

Some Clients Require a COI

Ghost policies can satisfy the needs of a client.

Some clients, especially corporate clients, require you to provide proof of workers’ comp insurance by showing a certificate of insurance when bidding on a job. Without it, they will not hire you.

Here’s a perfect example of a scenario in which ghost insurance could be beneficial:

  1. You work as an independent contractor and usually work alone.
  2. A client hires you to do a large construction project.
  3. To complete the job on time, you need to hire subcontractors to help you.
  4. In order to even get the contract, the client wants proof of workers’ comp insurance.

In this scenario, a ghost policy is the most affordable way to secure the job for yourself and your subcontractors.

But before you get excited about the idea of shirking any work comp requirements, it’s important to understand the pros and cons of this type of policy.

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The Pros and Cons of a Workers’ Comp Ghost Insurance Policy

ghost insurance handshake

As the name implies, a ghost policy is … shall we say … sort of shady.

For some business owners, it’s a way to avoid the responsibility of paying for actual workers’ compensation coverage. For others, it’s a legitimate way to provide proof of insurance even if you don’t think a workers’ compensation policy is necessary for your solo business.

Like all types of insurance policies, there are pros and cons of covering your business with a ghost policy:


Here are some of the benefits that ghost policies offer:

Ghost Policies Are Affordable

One thing that makes ghost insurance so attractive is its affordable cost. If you live in a state that allows workers’ comp ghost policies, you can usually get a policy for around $1,000 per year. Prices vary by state, with policies ranging from $700 to $1,800 per year.

In comparison to the price of actual workers’ compensation insurance in your state, a ghost policy may cost significantly less.

The national average cost for workers’ comp insurance is $936 per employee per year. This price makes it an affordable option for contractors who need proof of insurance to work.

Ghost Policies Provide Proof of Insurance

A ghost insurance policy is an excellent way to satisfy state requirements, as well as the needs of your clients.

Because some local governments have specific insurance requirements, a ghost policy that provides proof of insurance may be all you need to operate your business in your state.

When providing estimates to potential clients, you might need to provide a certificate of insurance or COI. Since a ghost policy doesn’t offer any payouts or monetary coverage, what you’re technically paying for is that COI.

When you look at it as a necessary expense required to conduct business, it’s well worth the cost.

Ghost Policies Provide Interim Insurance

Some business owners use a ghost policy as interim insurance.

For example, if you decide to hire a subcontractor to help with a particular project then decide to make that contractor an actual employee, you can use ghost coverage until you add the contractor to your payroll and provide them with a true workers’ comp policy.

For business owners considering hiring employees, this is a great way to test the waters of having someone work for you without making an instant commitment to add someone to your payroll and pay for workers’ comp insurance.


Now, let’s look at some of the downsides of ghost policies:

You Can’t Collect Benefits

The biggest con to ghost insurance is that it never pays benefits. All it does is provide proof of insurance.

Ghost insurance is inexpensive, but if you are an independent contractor with no employees and ghost insurance costs you $1,000 a year, it can actually be to your advantage to cover yourself with true workers’ comp insurance.

A legitimate workers’ comp policy could cost the same amount or only slightly more.

Before purchasing a ghost policy, compare the price to the cost of obtaining a real commercial insurance policy that will pay damages and cover lost wages in the event of an accident.

A Ghost Policy Provides Protection for the Client, Not for You

Because a ghost policy provides nothing more than proof of insurance, the people who benefit most are the client and the insurance company — not the business owner.

One stipulation of getting a ghost policy is that the business owner excludes themselves from coverage. That means that you assume all risk and give up your right to sue for any damages or receive income replacement caused by a work-related injury.

Here’s the bottom line:

If you get hurt during a ghost insurance policy period, you have no recourse.

Ghost Policies Are Not Accepted in All States

Ghost policies often have a negative connotation, which is exactly why they’re not accepted in all states. Nearly half of all U.S. states have banned ghost policies, deeming them an illegitimate form of insurance coverage.

States that don’t allow this type of coverage do so to ensure fair compensation of employees if injured on the job. It’s also a way to try to dissuade business owners from paying workers under the table.

Many businesses use ghost policies to save money and increase profits. This makes the option of paying employees under the table more attractive, even though it is illegal to do so.

Having employees on your payroll forces you to pay for workers’ comp insurance and employee payroll taxes. When ghost policies are allowed, some businesses choose not to “hire” employees on purpose or decide to either pay them under the table or sub-contract them out as independent contractors.

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Who Can Purchase a Ghost Insurance Policy?

ghost insurance research

The only people who can get a ghost insurance policy are business owners or independent contractors that have no employees on the payroll and don’t issue any employees W2s. If you do hire workers under a ghost insurance policy, you must pay them as 1099 employees.

Keep in mind that not all business owners need a workers’ comp policy or a ghost policy. Some independent contractors don’t need either.

If you’re an independent contractor who works from home and provides a service such as writing, marketing, or graphic design, you probably don’t need workers’ comp insurance at all, unless you live in a state that requires it.

You do need it if your job is a physical one where you work on-site at clients’ commercial or residential properties.

It’s not uncommon for general contractors, landscaping professionals, and similar types of workers to injure themselves on the job site. This is why so many clients will ask for proof of workers’ comp insurance. Without it, they could be liable for any damages you suffer on their property.

How and When Can You File a Claim With a Ghost Insurance Policy?

As the business owner and policyholder, a ghost policy excludes you from workers’ comp coverage. And since you don’t have any employees, it doesn’t cover anyone.

That makes filing a claim through a ghost policy pointless.

Under a ghost policy, no one is covered, which means that no one is eligible to file a claim.

A ghost policy can be beneficial to many self-employed independent contractors, just don’t expect to receive any hefty payouts.

If there is a possibility of getting injured on the job (and there always is), it’s much more beneficial to have an actual workers’ comp policy that will pay benefits when you make a claim. Business owners should obtain general liability insurance to protect their business, too.

How Do You Get Workers’ Comp Ghost Insurance?

The first step in acquiring a ghost insurance policy is to know if your state accepts it. There are 23 states that don’t allow ghost policies, including California, New Jersey, North Carolina, and New York.

If your state does accept ghost policies as proof of insurance, a simple Google search will pull up all sorts of insurance agency websites. All you have to do is input your contact information to start obtaining quotes from different insurance agents.

No matter what type of insurance policy you’re shopping for, we always recommend getting multiple quotes from different providers so you can compare your options.

Keep in mind that if you’re only getting a ghost policy for COI purposes, it’s usually best to select the cheapest option. You should also keep receipts for the premiums you pay.

As an independent contractor, you can deduct any business insurance premiums you pay when you file your business taxes.

Ghost policies make sense for some independent contractors.

But, it’s usually a better idea to acquire true workers’ comp coverage, especially if you work in an industry where there is a significant risk of injury on the job.

As an independent contractor or sole proprietor, you have to protect yourself and your business in the best way possible, and that starts with having the right types of insurance policies in place.

For more information on how you can enjoy added benefits as a freelancer or independent contractor, check out Selfgood and the benefits we offer.