Did you know that in 2024, the Occupational Safety and Health Administration (OSHA) reported approximately 826 worker deaths, which was 11% fewer than in 2023?

Workers’ compensation insurance is a component of workplace safety and financial protection for businesses and employees. Keep in mind that some companies are not obligated to have full workers’ compensation coverage.

In certain cases, companies with no direct employees opt for a workers’ comp ghost policy. Ghost policies can give you a false sense of security while putting you at serious risk.

Understanding ghost policies can help protect your business from big financial risks. This article will provide additional information about workers’ compensation ghost policies and how they affect business owners and companies.

What Are Workers’ Compensation Ghost Policies?

Workers’ compensation ghost policies are insurance plans that meet coverage requirements but don’t list actual employees.

Ghost policies are often used by businesses that need to follow state rules but lack on-site employees. Many contractors and seasonal businesses choose this option to save money and maintain compliance.

If an employee becomes ill or injured at work, they may discover that a ghost policy does not cover the same benefits as regular workers’ compensation. The insurance company might decline to cover the medical bills or lost wages that resulted from the injury.

According to San Diego workplace accident lawyer Brian Mitchell, ghost policies may appear to be a quick and convenient solution, but they can ultimately put you and your business at considerable risk over time.

How Ghost Policies Work in Practice

Ghost policies create the appearance of coverage for businesses to comply with the law and claim workers’ compensation insurance. If you don’t have employees, your payment will be based on estimated payroll numbers. Ghost policies can deceive clients or partners who require proof of insurance, giving you a competitive advantage.

Since you have no employees, filing a claim is likely to result in no coverage. Always measure the implications before opting for a ghost policy.

Risks Associated With Ghost Policies

Ghost policies come with risks that can seriously threaten the financial security of a company or a business. 

If an employee sustains an injury at work and you have a ghost policy, you may be responsible for significant medical payments since the employee technically does not have any coverage. If your company is not prepared for this unexpected expense, you may put a strain on its finances.

If state regulators found that you were using a ghost policy, you could face heavy fines or penalties. It could hurt your reputation, making it difficult to attract potential employees or clients.

Ghost policies do not protect against work-related liabilities, leaving you vulnerable to lawsuits. Understanding these risks can help you make informed decisions regarding workers’ compensation ghost policies.

Identifying and Avoiding Ghost Policies

To recognize and avoid ghost policies, carefully review your insurance documents.

Look for any inconsistencies or vague provisions in your policy that could indicate a ghost policy. Carefully check for missing coverage details, like employee classifications or payroll estimates, which might suggest you are underinsured.

See to it that your policy matches your actual business operations and the number of employees you have. Don’t hesitate to ask your insurance agent about any uncertainties you have with the policy.

You can compare quotes from different insurance companies, which can help identify potential ghost policies.

Inform your employees about injury reporting procedures so that everyone understands what appropriate coverage is. 

Following these steps helps you protect your company from unnecessary risks brought by workers’ compensation ghost policies.

Ensuring Proper Coverage for Your Business

Consult an insurance agent specializing in workers’ compensation to learn how to evaluate your situation and offer proper coverage. Your workers’ compensation policy should cover all employees, including seasonal and part-time workers.

Regularly review your policy whenever there are changes in your business operations, such as hiring new employees.

Your business or company should provide safety training for your employees to reduce the risks of workplace accidents and subsequently lower the incidence of claims. Proactively checking that you have proper coverage helps secure your enterprise and provide a safer working environment for workers.