Business Insurance Cost

Business Insurance Cost

Business Insurance Cost

There’s a lot that goes into figuring out what business insurance cost is right for your business. Being over-insured can be expensive for your small business today, but being under-insured can become really expensive very quickly if you don’t have the coverage you need when you need to file a claim. In this article we’ll talk about:

  • What type of business insurance your business might need
  • How business insurance costs are calculated
  • Factors that could affect insurance costs
  • Determining what coverage your small business might need
  • Ways to save money on small business insurance
  • What business insurance truly costs

What is business insurance and why do you need it?

Business insurance helps cover the costs associated with liability claims or property damage caused during the course of business by you, or even by employees. In the same way individuals purchase homeowners insurance and auto insurance to protect themselves from accidents and liability, businesses use insurance to do the same thing.

If you didn’t have business insurance, business owners could potentially have to pay out-of-pocket for costly damages or legal claims against their businesses. What’s more, depending on the damages, it could be financially devastating for many small businesses owners—putting their businesses in jeopardy. What’s more, there are some states that require certain types of insurance. 

What type of business insurance does your small business need?

Although there are some businesses that require different insurance than others, generally most businesses will need some kind of general liability insurance. In addition to general liability, there are other types of insurance the average business might need.

If you use automobiles or other vehicles in your business, you’ll need commercial auto insurance. If you have employees, you’ll need workers compensation insurance in most states. If you’re a professional and offer advice or professional services to your customers, you’ll also need professional liability insurance. There’s also product liability insurance, business income insurance, property insurance, to name the most common.

Because many small businesses will likely require more than one type of insurance, they often bundle insurance packages in what’s called a business owner’s policy or BOP. A BOP can help reduce the cost of insuring your business while providing all the insurance coverage you might need. Talk to you insurance agent to see if a BOP makes sense for your insurance needs.

How business insurance costs are calculated

No two businesses are exactly the same, which makes it hard to go online (without consulting with an insurance pro) to see what a policy would cost your business. There are however, some common things insurers look at to determine what a policy might cost.

  • The type of insurance: Commercial auto insurance will not have the same cost as professional liability, or example.
  • Industry: When an insurance company looks at your business, they are evaluating potential risk based upon the risk of other businesses in your industry. For example, an industrial or construction business might have more inherent risks of accidents than a professional office.
  • Risk: Generally speaking, in addition to your industry there are other factors that could influence your risk profile. For example, if you are purchasing commercial auto insurance, your driving record (and your employee’s driving records) will directly impact your premium costs.
  • Location: Where your business is located also makes a difference. If your business is located in a high-crime area, you should expect your insurance premium to be higher. Or, if your business is located in an area that regularly floods, you should also expect higher premiums.
  • The number of employees: The more employees you have the more annual expense will be associated with insurance like workers comp or professional liability coverage.
  • Your business income: Insurance companies assume that the more income your business makes the more there is to insure.
  • Your deductible: In the same way a higher deductible lowers your auto or homeowners insurance premium, the same is true with your business insurance.

Factors that affect business insurance costs

As a small business owner, there are a number of things that could influence the cost of your insurance—you can look at the above list to see how insurance companies calculate those costs. The following four things probably influence the way your policy is priced and how the underwriter views your business when they price your insurance policy.

  1. The nature of your business: What you do or what you sell makes a big difference and could impact the cost of your insurance. For example, professional liability insurance for a heart surgeon (malpractice insurance) is probably more expensive than professional liability insurance for an insurance agent. As a retailer, if you sell something that is easy to steal with a high dollar value like diamond engagement rings, your policy will likely be more expensive than another small business that sells more difficult-to-steal items like a washing machine or a refrigerator.
  2. Your business location: If your business is located in a hurricane zone, a floodplain, or someplace more likely susceptible to wildfire, your insurance premiums will likely be higher. Recent wildfires in California, for example, have likely impacted the business insurance premiums of a lot of businesses. If your business is located in a higher-crime area, it could also increase the cost of your premiums.
  3. Your prior claims history: If you’ve had business insurance before and have filed several claims over the years, you might pay higher premiums. For example, if you have delivery drivers with a history of accident or speeding tickets, your commercial auto insurance premiums will likely be higher than if your drivers all had spotless driving records.

Ways to save money on small business insurance

There are a number of ways to save money when you buy business insurance, but you need to make sure you don’t sacrifice the insurance coverage you need for a cheap price. Make sure you understand the coverage you’re buying because a cheap policy today can be a really expensive policy in the future if it doesn’t provide the insurance coverage you really need.

Shopping around and getting quotes from more than one insurance company is a good way to start. If you’re comparing apples to apples when you pit one policy against the other, you will likely find the best deal and save some money.

Higher-deductible policies are generally less expensive than lower-deductible policies. But be careful, that high deductible can be more expensive if you don’t have the cash available to meet the deductible.

Consider a BOP with the insurance coverage you need packaged together from the same company. Sometimes if you get all your insurance in one place, you can get a discount.

Work closely with your agent and do an annual review of your policies to ensure you have the right coverage at the right price. I do this every year or so with my auto insurance carrier and we always end up saving a little when we do.

What business insurance truly costs

There are a lot of variables that could impact the cost of your business insurance (see above), but according to Progressive, you might expect to pay the following for some of the most common business insurance policies:

What you will pay will be determined by what’s going on in your business, so use the above pricing as only a guide.

This article was originally written on February 19, 2021.

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Ty Kiisel

Ty Kiisel is a Main Street business advocate, author, and marketing veteran with over 30 years in the trenches writing about small business and small business financing. His mission at Nav is to make the maze of small business financing accessible by weaving personal experiences and other relevant anecdotes into a regular discussion of one of the biggest challenges facing small business owners today.

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