How to get business insurance and determine how much you need

How to get business insurance and determine how much you need

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Even if you run a low-risk company, business insurance is something you’ll need to consider along your journey as a business owner. As your company grows it will inevitably take on more risk, and business insurance becomes something you need to secure before it’s too late.

But what coverage does your business need? There are dozens of different insurance policies or packages that you could end up with, so it’s easy to be under- or over-insured. Do your due diligence and consider the steps below before you decide on a policy.

In this article:

What is small business insurance?

Small business insurance can mean many different things depending on what type of business you run. A simple way of thinking about it is that you’ll want to have any and all coverage that will keep you in business and won’t break the bank should something go wrong.

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For many businesses, this will mean getting general liability coverage, as well as coverage for commercial property, disasters, data breaches, workers’ compensation, and more.

It’s important to keep in mind that every insurance company and every policy is different. What insurance policy you’ll need will vary based on factors like the type of business you run and where you run your business.

How much does small business insurance cost?

Each insurance company looks at different aspects of your business and weighs these factors differently to determine your rate. A few big determining factors include:

  • Your risk profile. Businesses in the construction industry, for example, carry a larger risk than a tax accounting business.
  • Claims against your business. The more claims against your business, the more risk you carry.
  • Experience/business age. As your business puts years under its belt, you’ll find that you’ll be able to qualify for lower rates.
  • Insurance history. If you are switching insurance providers, your history with your previous provider could influence discounts offered to you.
  • The size of your business. Businesses with larger balance sheets tend to have a higher risk of being sued, as do companies with more employees.
  • Number of employees. Workers’ compensation insurance is mostly determined by the amount your business spends on payroll.

According to business insurance provider Insureon, the average cost of all business insurance policies came out to $1,281 per year, with a median cost of $584 per year. The median annual cost of general liability insurance, which is a common type of insurance recommended for many different types of businesses, was lower at $428 per year.

How to get the right insurance policy at the best price for your business

To determine the best way to get small business insurance, we consulted commercial insurance expert Ben Page of Page Insurance, an insurance agency in Idaho.

Page suggests asking yourself three questions to make sure you’re getting the right insurance:

  1. What’s the real risk to my life and business?
  2. What’s the best solution to mitigate those risks?
  3. How can I save on the policies that my business needs?

Page noted that it’s important not to lead with the question of cost, because “an insurance agent who is just looking to make a sale could suggest less coverage than you actually need to operate.” To save money on commercial insurance, Page offered these suggestions:

1. Shop roughly every 3 years for a new policy.

“Contrary to what people think, insurance companies do not reward loyalty after about three or four years,” Page notes. “They’re trying to get people in the door by offering different discounts, but the price of premiums always creep up over time.”

Shop too often for new commercial insurance and you’ll start to lose loyalty discounts. Stay too long with the same provider and the cost of your premium will start to rise. Reevaluating every three years allows you to show that you’re a solid customer without becoming a victim of increased prices.

2. Find an independent agent who truly knows your industry.

Business owners are typically best off finding an independent agency who specializes in commercial insurance to help them find the best policy, rather than going directly to an insurance company.

“An agent who specializes in selling auto and home insurance, for example, may not know a lot about a commercial insurance niche,” says Page. Because of the nature of commercial insurance, it’s best to find an agent who (1) is familiar with your locality and (2) has a deep understanding of your industry. Someone with expertise will help you make sure that you’re not under- or over-insured and that you’re getting the best deal on a policy package.

When looking for an independent agent, you can ask your industry association or other business owners in your local area.

3. Check with your industry association and peers for recommendations.

“Any industry association probably has connections with insurance providers, and sometimes they even have special discounts for association members,” Page shares.

Industry associations will vet any insurance provider they recommend, and other business owners in your area that you trust may do the same.

“If there’s someone you know who is successful in your industry, they’ve probably done your homework on business insurance,” Page says. “This can save you a lot of time and money, though you’ll want to follow up on any recommendations with your own due diligence.”

4. Consider a policy package.

Insurance companies generally offer different insurance packages for businesses in different industries. Your independent agent should be able to find these for you, and because it’s a pre-packaged bundle it usually offers the chance to save money versus buying each type of insurance separately.

A business owner policy (BOP) is one such package policy option. A BOP bundles multiple types of coverage, typically including general liability insurance and property insurance, and other add-ons. What a specific BOP covers will vary by the insurance provider and packages available.

7 common types of insurance to consider for your small business

A commercial insurance policy is extremely customizable based on your business needs. Here are seven commonly used types of insurance that you might consider:

What type of business is it for? Business insurance description
General liability insurance Any businesses. Protects you, your business, and your employees from damages that occur as a result of the business’s operations. This could be anything from the cost of physical injury incurred by a customer or employee on, or to property damage. General liability also covers the cost of defending a lawsuit regardless of fault.
Commercial property insurance Businesses with expensive assets or property. This covers damage does to the building where you conduct your business as well as the contents inside the building. Coverage should include storm damage, vandalism, fires, earthquakes and more. Commercial property insurance usually covers rental property as well.
Workers’ compensation, unemployment, and disability insurance All businesses that have employees. Businesses with employees are required by the federal government to have workers’ compensation insurance.
Commercial auto insurance Businesses that have company-owned vehicles or depend heavily on employee vehicles. Commercial auto insurance covers those who who are driving for business purposes. Most personal auto policies do not include coverage if driving for business purposes.
Product insurance Businesses that manufacture products. If you manufacture retail products, this might be for you. Product insurance protects a business from financial loss brought about by a defective product that causes harm or injury.
Business interruption insurance Any business prone to disaster. Should a disaster happen, business interruption insurance is meant to keep you in the same financial position should the disaster have not occured. This covers income lost due to having to close or rebuild, expenses associated with moving to a temporary location, and operating expenses still incurred by the business after the disaster occured.
Data breach (cyber liability) insurance Businesses that store sensitive customer data. Data breach insurance is meant to help cover the cost of things like legal fees and identity protection solutions for businesses under high risk of cyber security attacks.
Professional liability (E and O) insurance Professionals—doctors, lawyers, architects, engineers, etc. Also called Errors & Omissions insurance, professional liability insurance helps pay for lawsuits due to negligent services provided and more.

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About the Author — Lydia serves as Content Manager for Nav, which provides business owners with simple tools to build business credit and access to lending options based on their credit scores and needs.

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