One of the best ways to protect your business from financial loss is by investing in business insurance, which can provide you with both financial protection and peace of mind. However, this may leave you asking: How much does business insurance cost?
Various factors influence the cost of business insurance, including property size, location, risk level, annual payroll size and operating costs, claims history and coverage limits. Each of these elements has its own impact on insurance premiums that combine to determine the overall cost of a business insurance policy for any given business.
Read on to discover how these components impact the cost of business insurance and how to find the best small business insurance.
Table of Contents
- How much is business insurance on average?
- How much does business insurance liability cost?
- What factors determine business insurance premiums?
- How much is workers’ compensation insurance and do you need it?
- Tips for finding affordable business insurance
- Summary of Money’s How much does business insurance cost?
How much is business insurance on average?
Business insurance ranges in price depending on the type of insurance. In the table below, you’ll find average business insurance costs by category.
|Type of insurance
|Average monthly premium cost
|General liability insurance
|Business owners policy
|Professional liability insurance
|Workers' compensation insurance
|Commercial property insurance
*Average costs are based on reported costs of coverage from top insurers
How much does business liability insurance cost?
Business liability insurance protects your business against lawsuits and claims from third parties related to bodily injury, property damage and other losses. The term is often used interchangeably with commercial general liability insurance or simply general liability insurance. An example of a claim that falls within the scope of general liability insurance is when someone slips and falls on your business premises.
The cost of general liability insurance depends on a variety of factors, such as your business type, size and location. On average, small businesses can expect to pay at least $50 per month for general liability insurance coverage. However, small business insurance costs can range from $42 to $120 per month.
What factors determine business insurance premiums?
When learning what is insurance and how much it costs, it’s important to understand the elements that influence business insurance premiums. Several factors can affect the cost of business insurance premiums, ranging from business property size and location to claims history and coverage limits.
The following section examines these components in more detail and highlights the role each plays in the cost of business insurance.
Business property size
Generally, businesses that occupy larger properties and buildings tend to be considered higher risk than those that occupy smaller ones. It's not hard to imagine why — larger properties have more points of entry, more employees, more potential for accidents and more assets to protect.
As such, businesses with larger properties should expect to pay higher premiums for their business insurance policies than those with smaller ones.
Businesses located in high-risk areas, such as flood zones or seismic zones, typically have higher premiums for commercial property insurance due to the increased risk of damage or destruction. Additionally, businesses located in densely populated areas with a high crime rate may pay higher premiums for general liability insurance.
Another way location affects the cost of business insurance is through state-level regulations. Different states have different regulations when it comes to workers' compensation insurance, minimum liability coverage limits and other aspects of business insurance.
For example, businesses in Washington State, North Dakota and Ohio are required to purchase workers' compensation insurance from the state, while businesses in other states may be able to purchase it from private insurers.
Location can also affect the cost of commercial auto insurance. For instance, businesses headquartered in an urban area may pay higher premiums due to elevated car accident risks. In contrast, rural businesses with lower claim rates may be able to get cheaper rates.
Business risk level
Some businesses are considered higher risks than others, which is reflected in the cost of their business insurance premiums. For example, businesses that deal with hazardous materials, such as chemicals or explosives, are at a greater risk of causing harm and will end up paying more for their policies than many other types of businesses. Similarly, businesses that operate in industries with higher rates of employee injuries (e.g. construction or manufacturing) tend to pay higher premiums for their workers' compensation policies.
Annual payroll size and operating costs
The amount a business pays in workers' compensation insurance premiums is heavily influenced by its annual payroll size and operating costs. The more employees a business has and the higher its salaries, the more expensive its workers' compensation premiums will be.
The same is true for operating costs and revenue. Higher revenues usually mean more customers and an increased risk of lawsuits from customer injury or property damage. Thus, businesses with higher operating costs and revenues tend to pay more for general liability insurance.
Businesses with a repeated history of filing insurance claims should expect to pay higher premiums for business insurance policies. Insurance companies view businesses with repeated claims as a greater risk (either due to your business practices or the nature of your industry) and will likely charge higher premiums to protect themselves from potential losses.
Businesses that opt for higher coverage limits and lower deductibles on their business insurance policies will also pay higher premiums. This is because insurance companies assess risk based on the maximum payout they could have to make if a claim were to be filed. The higher the potential payout, the greater the risk for the insurance companies and the more they will charge for a policy.
Business owners should be aware of two types of coverage limits: the per-occurrence limit and the aggregate limit.
Per-occurrence limit refers to the maximum amount an insurance company will pay out for any one claim. Increasing the per-occurrence limit will increase the cost of the policy. Generally speaking, businesses with more assets and greater potential liabilities opt for a higher per-occurrence limit to ensure adequate coverage in the event of a claim.
Deductibles should also be taken into account when considering per-occurrence limits. You want to ensure that your deductible is reasonable enough for adequate coverage without causing a significant financial burden.
The aggregate limit refers to the maximum amount an insurance company will pay out for all claims in a given period of time. This limit is usually set for each policy year, and can be increased to accommodate businesses with higher potential liabilities.
Many small businesses have aggregate limits between $1 million and $2 million, while larger businesses may opt for higher limits to protect their assets.
How much is workers' compensation insurance and do you need it?
In most states, it is a legal requirement for businesses to carry workers' compensation insurance. There are some exceptions in certain states, such as for independent contractors or sole proprietors without any employees, but it is generally considered a necessary protection for businesses with employees.
As previously mentioned, some states only allow employers to purchase workers' compensation insurance from state-approved insurers, while others allow business owners to shop around from different private insurers.
The cost of workers' compensation insurance varies widely depending on your business's size and risk profile. Generally speaking, businesses should expect to pay between $0.50 and $2.00 per month per $100 of payroll for workers' compensation insurance.
Smaller businesses with fewer employees will pay lower premiums, while larger businesses with more employees and higher risk profiles will pay more. Ultimately, the cost of workers' compensation insurance depends on a variety of factors, including the type and size of your business, your industry and the state in which you operate.
Tips for finding affordable business insurance
Finding affordable business insurance can be challenging, but there are several strategies that businesses can use to reduce their premiums. For example, businesses can reduce their risk by staying up-to-date on safety protocols and training programs to help prevent accidents and illnesses in the workplace. By not having to file as many claims, businesses will appear less risky to insurers and likely save money on their premiums.
Additional strategies include searching for bundling opportunities, comparing quotes from multiple companies, paying an annual premium rather than monthly and choosing a higher deductible.
Look for bundling opportunities
Bundling policies from the same insurer could result in significant discounts. For example, a business owners’ policy that combines general liability insurance, commercial property insurance and other coverages into one package typically offers a lower rate than buying these policies individually.
Many businesses are also required to have a commercial auto policy. Some companies may offer discounts for bundling your auto insurance with your business' other policies.
Compare multiple business insurance quotes before you settle
As with any other purchase, it is important to compare quotes from multiple companies when shopping for business insurance. This will ensure you get the best coverage at the best price.
Use online comparison tools and contact local agents to find the most competitive rates. Also, be sure to read the fine print and understand exactly what is covered in a policy before making any commitments.
Pay an annual premium
Many insurers offer discounts for businesses that pay an annual premium, as opposed to paying a monthly premium. This reduces their administrative costs and risk and provides businesses with the peace of mind that their insurance is taken care of for the entire year.
Choose a higher deductible
Businesses may also want to consider raising their deductibles. This means they will pay a higher upfront payment before their insurance kicks in, which can also lead to lower monthly premiums.
Ultimately, businesses should balance the cost savings from a higher deductible with the risk of having to pay more out-of-pocket if a claim is filed. This is a delicate balance, so businesses should carefully evaluate their risk and consider whether a higher deductible is worth the potential savings.
Summary of Money's How much does business insurance cost
Business insurance is crucial for protecting your venture from financial loss, offering financial security and providing peace of mind. There are several different types of business insurance, including workers’ compensation, general liability, commercial auto, commercial property and business owners’ policies.
The cost of insurance depends on many factors, including the size and location of your business, annual payroll size and operating costs, the type of industry, claims history and selected coverage limits and deductibles. In addition, the specific state your business operates in can also affect costs.
One of the most common types of business insurance is general liability insurance, which protects companies from third-party claims (e.g. bodily injury, property damage and other losses).
To save on insurance costs, businesses can employ several strategies, including shopping around for quotes from multiple companies, paying an annual premium upfront, selecting a higher deductible and searching for bundling opportunities. In addition, ensuring proper safety protocols are in place can help reduce the number of claims an insurer has to pay out and, in turn, the cost of premiums.