What Is a Ghost Policy for Workers Comp?

Contractors run into this the same way every time. A general contractor sends over an insurance requirement, workers comp is on the list, and you do not have employees. You are one person with a truck. Somebody tells you to get a ghost policy. Here is what you are actually buying, who qualifies, and the situations where it is the wrong purchase.

What is a ghost policy for workers comp?

Ghost policy is industry shorthand, not a legal term and not a product name printed on any declarations page. What you are buying is a standard workers compensation policy issued at the carrier's minimum premium, written for a business whose only worker is the owner, with that owner formally excluded from coverage.

Strip out the jargon and the structure looks like this:

• The policy is real and issued by a licensed carrier.
• The named insured is your business.
• There are no employees on the payroll.
• The owner has elected out of coverage in writing.
• The premium is the carrier's minimum, because there is no covered payroll to rate.

The output is a certificate of insurance showing active workers compensation coverage. That certificate is the entire point. It satisfies a contract requirement and gets you on the site. If you are not sure what a certificate does or does not prove, our explainer on what a certificate of insurance is covers how they are read and misread.

Why do contractors buy ghost policies?

Three reasons come up in practice.

A general contractor requires it. Most GCs require every sub to carry workers comp with no carve-out for one-person operations. Their own audit is the reason. If a sub cannot produce a certificate, the GC's carrier typically charges the GC for that sub's payroll at audit. The requirement is not bureaucratic stubbornness, it is the GC protecting a real number.

A client or property manager requires it. Same logic, applied by facilities managers, municipalities, and larger commercial clients.

It costs less than the alternative. A full policy that actually covers the owner rates the owner's payroll and costs substantially more. If you are truly a one-person shop and you carry your own health and disability coverage, the minimum premium option is often the rational buy.

Who qualifies for a ghost policy?

The eligibility test is narrower than most people assume. All three have to be true.

No employees. None. Not part-time, not seasonal, not your nephew for two weekends in July.

No uninsured subcontractors. If you hire subs, every one of them needs to carry their own workers comp and hand you a valid certificate. An uninsured sub is treated as your employee at audit in most states.

No payroll other than the excluded owner. Owner draws are not wages, which is why the rating basis comes out to nothing.

Availability of a minimum premium structure is a carrier underwriting decision, not something any state guarantees, and it varies by carrier and by class code. Some carriers will not write them for higher-hazard trades such as roofing, and several decline HVAC, plumbing, electrical, painting, and flooring. Whether one is available to you depends on who is writing and what work you actually perform.

What does a ghost policy not cover?

This is the part that gets skipped in the sales conversation, and it is the part that matters.

It does not cover you. You excluded yourself, and that was the deal. Fall off a ladder and workers comp pays nothing, not medical and not lost wages. Your health insurance becomes the only backstop, and health plans can and do question injuries that occurred at work.

It does not cover anyone you hire. Put one person on a job, even for a day, even in cash, and there is no coverage for their injury. You are then an employer operating without workers compensation insurance, which carries real exposure.

It does not cover an uninsured sub. If you bring on a sub who cannot produce a certificate, most states treat that sub as your employee for comp purposes. Your ghost policy has no payroll and no covered persons behind it.

It does not survive an audit that finds payroll. Ghost policies get audited like every other workers comp policy. If the auditor finds wages, payments to uninsured individuals, or subcontractor payments without certificates, that money gets rated and billed. See what to expect at a workers comp audit for how that process runs.

Are ghost policies legal in Illinois?

Yes, when they are used correctly. Per the Illinois Workers' Compensation Commission, sole proprietors, business partners, corporate officers, and members of limited liability companies may exempt themselves from coverage, with the election made in writing to the carrier under Section 3(17)(b) of the Act. Officers and members engaged in extra-hazardous occupations generally cannot elect out. A minimum premium policy with the owner excluded is a legitimate structure for a business with no employees.

It becomes a problem the moment the business has employees or uninsured subcontractors. Illinois requires workers compensation for nearly every employer with even one employee, including part-time, and there is no small-business exemption based on headcount. Our Illinois workers compensation insurance page covers the state requirements in full.

The penalties are not trivial. Under Section 4(d) of the Act, an employer that knowingly and willfully fails to obtain insurance may be fined up to $500 for each day of noncompliance, with a minimum fine of $10,000. A corporate officer who negligently fails to obtain insurance commits a Class A misdemeanor, and one who knowingly fails to obtain it commits a Class 4 felony. The Commission can issue a work-stop order, and corporate officers can be held personally liable for the penalty.

The exposure that actually ends small contractors is quieter than the fines. An employer without workers compensation coverage loses the exclusive remedy protection the comp system provides. The injured worker is no longer limited to comp benefits and can sue you directly in civil court, where there is no cap. Workers comp exists partly to put a ceiling on that. Operate without it and the ceiling comes off.

How much does a ghost policy cost?

Pricing is the carrier's minimum premium, set by state and by class code rather than by your payroll. In practice most one-person contractor policies land somewhere around $1,000 to $1,300 a year, with higher-hazard classifications running above that. Treat those as a planning range, not a quote. The only real number comes from a carrier looking at your entity type, your class code, and your state.

Compare that against the audit exposure. One uninsured helper discovered at audit can generate a premium bill that dwarfs a year of minimum premium, before you get anywhere near the statutory penalties. For how workers comp premium is built once you do have payroll, see our guide to how much workers comp insurance costs.

When should you not buy a ghost policy?

Skip the ghost policy and buy real coverage if any of these describe you:

• You hire helpers, day labor, or seasonal workers, at any volume.
• You use subs and do not have a hard rule about collecting certificates before work starts.
• You want coverage for your own injuries and you do not carry solid disability insurance.
• You are growing and expect to add a first employee inside the policy term.

That last one catches people. A ghost policy bought in March by a solo operator who hires a first employee in June has been the wrong policy since June. Coverage does not update itself because your business changed, so call your agent before the hire rather than after. Our contractor insurance page covers what the rest of the program should look like as you add crew, and our Illinois contractor insurance guide covers the local licensing and insurance requirements that come with it.

Frequently asked questions