What Is the Average Cost of Small Business Insurance

Man with Money Reminder String on Finger
••• Image courtesy of [CSA Images/Snapstock] / getty Images.

If you are shopping for business insurance, one of the first questions you are likely to ask is, "How much will it cost?" This question is difficult to answer precisely because the amount you pay for insurance depends on a number of factors. Nevertheless, you can estimate your cost based on some average numbers that are available online.

Factors That Affect Your Premium

There are several key factors that affect the price you pay for an insurance policy. The most important of these is your industry and type of business. Businesses in hazardous industries generate more risks than businesses in less hazardous industries. Drilling for oil and gas is riskier than repairing computers. Riskier businesses are more likely to sustain losses so they pay more for insurance than their less risky counterparts.

Other factors that affect the cost of a policy include your loss history, your track record (years in business), your location (state and city), and the size of your company. Costs can also vary from one insurer to another.

Average and Median Costs

Insureon is an online insurance agency that caters to small businesses. In 2017, the company analyzed more than 18,000 policies it had sold to customers. The businesses were very small. All had 10 or fewer employees (the average was only 2) and generated an average annual revenue of $304,076. The median revenue was $80,000. Insureon's analysis showed that the average cost of insurance per year for all types of policies was $1,281. The median cost of insurance was $584.

Cost Varies By Type of Coverage

The cost of insurance varies by the type of coverage. In the study cited above, Insureon calculated both the average and the median costs of general liability, errors and omissions (E&O), workers compensation, and commercial umbrella policies. Here's what it found.

General Liability

Virtually all businesses need general liability insurance to protect themselves against third-party bodily injury and property damage claims. For general liability insurance, Irsureon's customers paid an average premium (for all limits) of $741 and a median premium of $428. About 53 percent of businesses paid $400 to $600 per year.

Insureon also calculated the average premium paid by businesses in different industries for a policy that included a limit of $1 million per occurrence and $2 million aggregate. This is the limit typically recommended by agents and brokers. As expected, the premiums varied widely, ranging from $441 for accounting firms to $1,379 for wholesalers. Contractors ($982) and manufacturers ($914) paid more than healthcare professionals ($447) and consultants ($549).

Errors and Omissions

Businesses provide expert advice or specialized services to others need E&O insurance. Examples are architects, structural engineers, and accountants. Insureon's analysis of 18,000 policyholders showed that the average cost of E&O coverage was about $1,736. The median cost was $920.

Some professionals generate more claims or costlier claims than others. Not surprisingly, higher-risk professionals pay more for E&O coverage than those with lower risks. Insureon found that the average cost of a policy (with limits of $1 million per claim and a $1 million aggregate) was $3,255 for engineers and architects, $1,439 for information technology firms, and $1,003 for accountants.

Workers Compensation

Most businesses that employ workers are obligated by law to purchase a workers compensation policy. The premium you pay for workers compensation insurance depends on the classifications assigned to your business, the rate charged for each classification, your payroll, and your experience modifier. Rates vary widely from state to state. For instance, the average cost of insurance per $100 pf payroll is about $2.74 in Alaska, $1.77 in Wisconsin, and $.76 in Massachusetts. Neighboring states can have very different average costs.

Examples are Oklahoma ($2.22) and Texas ($.75).

Commercial Umbrella

An umbrella "sits on top" of your general liability, auto liability, and employers liability coverages. When shopping for an umbrella, look for a policy that provides both excess limits and broader coverage than your primary policies. The premium you pay for an umbrella is largely determined by the nature of your business and the limit you purchase.

Insureon's analysis showed that the average annual cost of an umbrella (regardless of the limit) was $1,533 and the median cost was $960. Of its customers that purchased an umbrella, most chose a limit of $1 million per occurrence and $2 million aggregate. The premium for these limits varied by industry. Business consultants and contractors paid the most ($2,554 and $2,410, respectively) while cleaning services (janitors and maids) and retail businesses paid the least ($1,130 and $1,154, respectively).

Commercial Auto

Businesses that use autos need commercial auto insurance. This is true whether the autos are owned or hired by the business or belong to someone else (such as an employee).

The rates you pay for auto liability insurance depends on the types of vehicles you own, the location where they are stored, and the manner in which they are used. You will pay more to insure a large truck than a private passenger auto. Likewise, a truck used for delivery purposes will cost more to insure than a similar truck that sits at a job site most of the day. The cost of auto physical damage coverage depends on the value of the vehicle (cost new) and the coverage you choose (including deductibles).

Insureon did not include auto insurance in its premium analysis. However, estimates of commercial autos premiums are available at a financial website called Howmuch.net. The website states that the average cost per vehicle is approximately $750 to $1,200 per year. This is based on a $1 million limit for liability and a $500 deductible for both comprehensive and collision coverages. Howmuch.net also provides estimates of general liability and commercial property premiums.