Selecting the Right Workman’s Compensation Insurance for Your Business

Workman’s compensation insurance is a touchy subject for any business owner. As I have previously shared, when I first started my business, I opted to not carrying the pricey insurance. Though I was not outside the state’s regulation, most of my clients demanded the coverage. 

Unlike liability insurance, workman’s comp is more involving and a lot more expensive. Due to its price, many entrepreneurs are pressured to find alternate cheaper coverage. And that is where the problem lies.

When seeking cheaper premiums, shark insurance agents will do anything to close a sale. They will push something called ghost policy. It is a cheaper alternative option, but is it really worth it?

What is a Workman’s Comp Insurance?

It’s a type of insurance purchased by employers to provide coverage to work-related injuries and illnesses. Each state has its own set of demands on coverage, it depends on income, and type of business.

A work-related injury or illness could be devastating to a corporation. Ultimately, the policy helps to protect the business and its employees from financial loss in case of a work-related accident.

In the event, either employees or subcontractors are the subject of such injury, they would receive benefits payout — regardless of who is at fault.

What is a ghost policy?

Ghost policy was designed for a one-person business. The coverage suffices the state’s requirements. It allows an owner to provide a Certificate of Insurance with proof of insurance at the most affordable price.

But, the policy states that the owner purchasing it is not covered — or no one for that matter.

The policy is only legal if, and only if, the company has no employees or subcontractors. If you were to hire either employees or subcontractors, the insurance would still be valid until a functioning workman’s comp policy is purchased.

In other words, a ghost policy is a policy number, with no benefits. Under such coverage, a claim could never be made.

At the end of a full year, an audit will be scheduled. If you happened to pay a subcontractor, the premium will be adjusted. I can guarantee that it will be a hefty fee.

Should You Purchase a Ghost Policy?

Remember that ghost policy does not provide any coverage. Why would someone purchase it?

As I previously mentioned, such policies were designed for the one-person company, with no employees or subcontractors. The insurance comes handy when it is a state requirement — or to provide a certificate of insurance to a client or general contractor.

It is a valid option for businesses who need to provide proof of insurance, and know they will not be hiring workers.

Alternative Ways to Purchase Affordable Workman’s Comp

Ok, let’s be honest — there is no affordable workman’s comp insurance. However, you can approach it in a different way that could help your business financially.

Pay-as-you-go workers’ compensation insurance is increasing in popularity. The most significant benefit is that it eliminates the up-front cost.

Another excellent benefit is that you do not have to deal with audits.

Unlike traditional workers’ comp insurance, with pay-as-you-go, the premiums are based on actual payroll instead of the projected.

Spreading the costs throughout the year help your business to manage the expenses, while not breaking the bank.

If you are considering providing services in the multifamily industry, or whatever field you are working, I highly recommend going with the pay-as-you-go option.

All other workers’ comp insurance will require audits at the end of the year — and most likely request an adjustment of your premium. Additionally, the lump sum payments will hurt cash flow.

As mentioned above, pay-as-you-go does not require an audit, neither a lump sum payment. Which is ideal for small businesses with one or two employees or subcontractors.