How Much Does Business Insurance Cost?

How Much Does Business Insurance Cost?

Somewhere in that endless list of things-to-do and boxes to check, a small business owner needs to think about business insurance.

It might be easier to convince yourself that you’ll figure out insurance later or that maybe you won’t need it, but all businesses have risks and make mistakes. Business insurance should be a priority.

A quick search for business insurance on the internet might, however, create more questions than answers. What kind of insurance do you need, anyway? What is a reasonable amount to pay for coverage, and what is the average business similar to yours paying? Can you save money by buying different kinds of coverage from the same company?

It’s normal to feel overwhelmed about how much things will cost, but since business insurance is a must (and possibly even a legal requirement) for your small business, we will breakdown how much you can expect to spend to protect the business you love.

How Much Does Business Insurance Cost?

“So, how much will all this cost me?”

There is no pat answer that tells business owners how much they might spend to fully cover their business. The factors and choices can seem endless. Are you buying a business owner’s policy or opting only for worker’s compensation? Do you have a risky endeavor that might need a high ceiling on your general liability and professional liability? Would adding umbrella insurance help you sleep at night? What do you actually need and what is simply a scare-tactic up-sale from an industry that peddles you worst-case-scenarios?

In general, a larger business with more options for risk will end up paying more than a sole proprietor, but that doesn’t mean that insuring your business has to break your budget, either.

Average Cost of Business Insurance

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According to Insureon, an insurance provider that specializes in commercial businesses, the average cost for business insurance among their customers in 2017 was $1,281 per year and the median cost was $584. (In this case, nearly 60% of the businesses inventoried only had one employee: the owner!)

However, with a plethora of individual factors involved, the pricing scale differs widely between businesses, their needs, their risks, and how much they will cost to insure. An automotive insurance adjuster takes everything about a driver and his/her car into account before calculating the cost to the insurance company, and business insurance operates the same way. If you’re a reckless driver with some tickets under your belt, that price tag for insurance is going to increase. If you’re running a risky business (resisting…Tom….Cruise…joke), expect the same.

A sole proprietor looking for a single general liability policy with a million dollars in coverage might only pay as little as $30 a month.

How Business Insurance Costs Are Calculated

If we take the time to peek behind the curtain and examine how costs are calculated, it can demystify the process and give business owners an idea of what to expect before they get a quote from their insurance company.

First, think about your small business and your industry’s potential risks and liabilities. How much risk is involved with all the facets of your business? Riskier, larger, and more profitable companies will require more comprehensive protection and will therefore pay more.

Your own insurance calculations will be completed by an actuary from an insurance company who will explore your space, your product, your financial numbers, and assess your own particular risk and loss. (Are you a paper company located within a high forest fire hazard zone? A glass company on an earthquake fault line? A pool builder in the middle of a drought? Okay, okay, you get the idea.)

After the actuary looks at the risk and loss, the size and revenue from your company will factor into the ultimate decision. When you ask for a quote, you will need to provide the actuary an ample amount of data with all your business numbers (square footage of space, payroll details, etc.), so arrive prepared.

Business Insurance Cost Factors

When the actuary (someone whose sole job is to manage risk and assess risk) arrives from the insurance company to sit down and plug all your risks, losses, and opportunities for income into the calculator, many factors can ultimately impact that final number. Knowing which factors might affect cost could help you plan ahead.

  • Your Business Size: What is the physical square footage of your business? What kind of space does it require? The larger the space, the larger the quote.
  • Location, Location, Location: Location is a key factor for multiple reasons. First, where you are located will affect your premiums because some states are more accommodating than others. Are you located in a state that is considered small business friendly or lawsuit friendly? Location also factors into other business risks like flooding, crime, and foot traffic. (More water, more thieves, more people in your storefront? More money.)
  • Business Sales Reports: How much money do you make? It’s pretty simple. The more money you make, the more insurance you’ll need. An actuary will look at your numbers and see how much you — or they — might stand to lose.
  • Your Business Industry: Offices require less capital to insure than, say, a traveling circus. Some industries are built with inherently more risk than others, and the insurance company will examine all the ins and outs of how your business operates to know the best ways to protect you.
  • Number Of Employees: More employees, more insurance. (Are we sensing a theme?)
  • Claim History: As with any insurer, the actuary will also look at your past business history and see if you have made any claims in the past.
  • Types Of Policies: The bigger your business, the bigger the policy. If you don’t have any employees and can stick with general liability, you will pay pennies next to a business that is working to protect employee incomes.

Ways To Save On Business Insurance

So, you want to protect your business but you don’t want to spend more than you need to? Maybe you can’t change where your business is located or your claim history, but here some tips on how to save on business insurance:

1. Bundle Policies

Bundling your insurance policies will often save you money. Consider a business owner’s policy which combines both general liability and commercial property insurance.

2. Shop Around

Insurance companies are in the business of sales and that lowest quote may not always be the best deal in the long run if the company can’t follow-through when you submit a claim. Your business is important enough to do the research. Five independent agencies (including Standard, Poor, and AM Best) rate the financial strength of an insurance company and you can use their services for free if you sign up for an account.

3. Choose A Higher Deductible

A deductible is the amount of money you will pay before your insurance kicks in. Choose a higher deductible and your premiums will go down.

4. Group Rates

Group rates might be available for your industry! If so, this route could save you the big bucks and possibly get you better coverage

5. Work With An Agent Who Specializes In Business

Go out and find an expert on small business insurance instead of settling for an agent who might not know the specifics of your industry.

6. Pay Your Premium In Full

It may be cheaper to pay your premiums for the year in one lump sum rather than spread them out in 12 monthly installments.

Where to Buy Business Insurance

According to Insureon, only 1 in 4 small businesses has adequate insurance and 80% of small businesses never recover after a disaster. Clearly, you need to protect your business, but where should you start?

All the major insurance companies carry commercial business insurance packages. So, places like Allstate, Farmers, Nationwide, and Chubb all offer competitive rates. Some companies, like Hartford and Hiscox, which specialize in small business insurance, have online quotes that walk a business owner through the process of optimizing their rate.

Again, it’s smart to check with the Better Business Bureau or your state’s department of insurance to examine the viability and strength of your insurer. Use the rating agencies and talk with business owners in your area. Ask around and shop around: this is your business baby and should the worst-case-scenario befall your company, you don’t want to end up in the 80% of businesses who have to close their doors after a disaster.

Comparing Business Insurance Quotes

Pre-internet days, a business owner might need to make an appointment with several insurance retailers and sit through long sales pitches before receiving a quote. Now, it’s easy to get an online quote from an insurance company in minutes over the internet. That isn’t to say that scheduling a face-to-face meeting with your top three insurers is a bad idea. Once you’ve narrowed down choices, talking to a real human being could help you make a final decision on what insurance company you trust the most.

Not all business insurance plans are created equally, so here are some things to consider as you compare:

  • Don’t just fixate on the premium number, but also look at the rate. As your company grows, the rate may increase as well and price you out of your own policy.
  • Cheaper isn’t always better. Carefully weigh the cost with the level of coverage you need and don’t skimp on the coverage you need just to pay less.
  • No insurance plan covers everything, so discuss and address exclusions to the policy to make sure there are no surprises.

Several websites also can do the initial aggregate work for you and compare all the major retail policies in one place. Check Bizinsure, Coverhound, and Insureon and have your company numbers ready to go (number of employees, sales data, business address, and square footage). You can grab comparison quotes from these websites in a matter of minutes.

After you’ve carefully researched and compared all of your options, pick the best one suited for your business. Consult an insurance professional for advice. Once you’ve found the right business insurance you can rest easy knowing that you got your business the coverage it needs — and without breaking the bank.

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