Definition:Ghost policy
👻 Ghost policy is a minimal workers' compensation or general liability policy issued to a business owner who has no employees, carrying a very low or minimum premium and providing little to no actual payroll-based coverage. Its primary purpose is not to insure a workforce but to satisfy a contractual or licensing requirement — general contractors, project owners, and government agencies routinely demand proof of coverage before allowing a sole proprietor or subcontractor onto a job site or into a bid process.
📄 The policy is structured much like a standard workers' comp or GL policy, but because no employees exist to cover, the exposure base (typically payroll) is zero or nominal. The insurer charges a minimum premium — often just a few hundred dollars — and the policy period functions normally, subject to audit at expiration. If the business owner hires workers during the policy term, the audit captures the actual payroll and generates an additional premium charge, converting the ghost policy into active coverage. Underwriters generally view ghost policies as low-risk, high-volume transactions, though they monitor for situations where contractors use them to mask employees who should be covered.
⚠️ Despite its nickname, the ghost policy serves a legitimate market need by keeping sole proprietors from being shut out of contract work. Without it, an independent contractor might lose project opportunities or face penalties for noncompliance with state workers' compensation mandates. The risk for insurers lies in adverse selection and premium evasion — a subcontractor who quietly adds a crew without reporting payroll exposes the carrier to unpriced claims. Robust audit programs and certificate-of-insurance tracking systems help carriers manage this exposure while preserving the product's accessibility for genuinely solo operators.
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