The Ghost Policy, a term very well known in the construction and contracting industry, however, the amount of contractors that do not understand nor know what this specific policy does or is can be quite frightening. It is no secret, that many contractors find themselves in need of Workers Compensation to appease the insurance requirements of large general contractors, or even other contractors that are hiring their professional for a specific job. Although, Snotherly Insurance does advise all business owners including contractors to carry a Workers Compensation policy in place many and most often one to two men contractor operations opt out to on carrying on a Workers Compensation policy with the intent on saving on insurance cost. Most of the time these individuals in fact do not even have employees to carry an actual Workers Compensation policy on. Nevertheless, with no employees, nor payroll exposure, these certain individuals in order to be hired by a general contractor may purchase what is known as a Ghost Policy. A ghost policy can be a quick solution in purchasing a Workers Compensation policy and for many, this specific policy may be a more affordable alternative to purchasing a standard Workers Compensation policy. However, similar to a haunted house, this specific policy can be viewed as not only dangerous, but also quite financially frightening! Below we offer a few reasons why ALL CONTRACTORS should be educated as well as wary of Ghost Policies.
1. A Ghost Policy protects.....
When working with contractors we hear something similar to the following statement consistently "I am fully insured, I don't have any employees, but I do carry Workers Compensation and it covers me". This statement could not be further from the truth. In actuality, A Ghost Policy DOES NOT protect the owner of the policy. The policy is termed "If Any" and actually excludes the policy owner (aka the contractor in need of the policy). In most cases, a Ghost Policy protects no one at all.
2. No Coverage if the owner is injured
Due to the fact that a Ghost Policy neglects to protect the policy owner/contractor, there consequently is no coverage if the ghost policy holder were to be injured on the job. Carrying this specific policy does eliminate the responsibility of any general contractor's or large vendors at a project or job site from protecting the contractor if a Workers Comp injury were to occur.
3.considering hiring employees? WATCH OUT!!!
Alongside there being no coverage for the contractor/policy holder which carries the Ghost Policy, this specific policy not so surprisingly lacks coverage for any additional sub contractors or future employees that the policy holder may work with throughout the year. Hence, if an injury were to occur to an employee or sub contractor, the Ghost Policy holder could be responsible for paying all medical bills out of pocket!!!
Additionally, financial audits are required after the policy term for all Ghost Policies. If the insurance company has learned that sub contractor's or employees were hired by the Ghost Policy Holder at anytime throughout the year, additional audit charges will be applied to the policy holder. These audit charges can typically equal thousands of dollars and higher.
RUN LIKE YOU'VE SEEN A GHOST when you see or hear of a ghost policy!! In addition to the reasons listed above, there are multiple disadvantages to owning a ghost policy including possible disgruntled general contractors, difficulties with audit information, and purchasing a policy without performing the necessary audit and application compliance requirements could deter one from being able to legally purchase a standard Workers Compensation in the state of North Carolina. The best solution whenever possible is to carry a standard Workers Compensation policy.
Snotherly Insurance Agency can assist small business owners including contractors with their Workers Compensation needs. We do have authority to sell Ghost Policies when absolutely necessity through our agency, however we do strive to educate all of our customers on the dangers of these policies prior to purchase. For further Ghost policy, workers compensation or business insurance information please feel free to email us at firstname.lastname@example.org.
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