How Much Will Insurance Cost for My Small Business?

Your premiums reflect your company's risks

Small family restaurant owners discussing finance
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If you're like many business owners, you dislike buying insurance. You'd rather save the money you spend on premiums and use it to pay rent, payroll, or other business expenses. While skimping on insurance may be tempting, you should avoid the urge. An uninsured loss could cost your business many times more than the price of an actual insurance policy.

When you're shopping for business insurance, one of the first questions you're likely to ask is, how much will it cost? While many factors affect the cost of insurance, you can estimate the amount you'll pay using pricing data that's available online.

Why You Need Small Business Insurance

Businesses need insurance to help cover the costs of losses caused by unexpected events like windstorms, auto accidents, and slip-and-fall incidents. Some events can cause physical damage to company-owned property while others can lead to costly lawsuits against the business. In the absence of insurance, a business will have to pay losses out of pocket. A single large loss could put a small company out of business.

Many business are required by law to purchase workers' compensation and auto liability insurance. Some also purchase insurance to satisfy the terms of a contract.

What Determines Your Premium?

Many aspects of your business affect the price you pay for an insurance policy. Here are some things insurers consider when calculating your premium.

  • Your industry and type of business: All businesses have risks and some are riskier than others. Businesses in high hazard occupations have a greater risk of losses so they pay more for insurance than those with fewer risks.
  • Your loss history: A business that has never filed a claim will pay less for insurance than a similar business that has a poor loss record.
  • Location of your business: Property insurance rates are affected by weather-related risks and the potential for natural catastrophes. These risks vary by geographical area so rates vary as well.
  • Expertise and experience: Business owners who are knowledgeable in their field and have a proven track record will pay less for insurance than newbies.
  • Type and complexity of coverage: Generally, the more coverage you buy, the more you'll pay.

Insureon Provides Some Guidelines

If you're looking for information about the cost of small business insurance, a useful resource is the online insurance agency Insureon. The company tracks the premiums its customers pay and the coverages they buy, tabulates the data, and then publishes the results on its website. You can use this data to estimate your cost of insurance.

Cost of Insurance Varies By Type of Coverage

The cost of insurance varies by the type of coverage. Insureon tracks premiums separately for each type of insurance described below.

General Liability

General liability insurance covers claims against a business for third-party bodily injury and property damage. Insureon's customers pay a median annual premium of $500 for this coverage. Some businesses pay more and others pay less. At the high end are construction businesses, which typically pay around $825. Video and photography businesses typically pay the least at about $275. Landscaping and cleaning companies fall into the middle, paying about $530.

Business Owner's Policy

A business owner's policy (BOP) is a package policy that includes both general liability and commercial property coverages. Insureon's customers pay a median annual premium of $636 for a BOP. The premium varies by industry. Businesses in the food and beverage industry pay the most, about $1,608, while consultants and accounting businesses pay the least, at around $500.

Errors and Omissions

Consultants, designers, accountants, and other businesses that provide expert advice to others need errors and omissions (E&O) insurance. Insureon's customers pay a median annual premium of $713 for an E&O policy.

The cost of E&O insurance varies depending on the risks associated with the business. Building design professionals have a higher risk of claims than real estate agents. Accordingly, building design professionals pay a median annual premium of $1,705 for an E&O policy, while real estate professionals pay about $665.

Workers' Compensation

Many states require businesses to buy a workers' compensation policy even if they employ just one worker. The amount 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.

Insureon's customers pay a median annual premium of $560 for workers' comp insurance. Some businesses pay much more. Examples are construction and landscaping businesses, which pay $3,264 and $1,813, respectively. Businesses that pay less than the median include information technology companies ($436) and accounting firms ($396).

Commercial Umbrella

A commercial umbrella "sits on top" of your general liability, auto liability, and employer's liability coverages. Your premium is largely determined by the nature of your business and the limit you purchase. Many businesses buy standard limits of $1 million per occurrence and $2 million aggregate.

Insureon's customers pay a median annual premium of $900 for an umbrella. The premium varies by industry. Building designers pay the most ($1,601) while personal care businesses pay the least ($478).

Commercial Auto

The rates you pay for commercial auto insurance depend on the types of vehicles you own and the way they are used. You will pay more to insure a large truck than a private passenger auto. Insureon's customers pay a median annual premium of $1,704 for a business auto policy.

Insureron's typical customers are very small. Sixty percent generate less than $100,000 in annual revenue, and 62% have only one employee. Larger businesses may pay more than the median indicated.

Deciding How Much Coverage You Need

What types of insurance do you need and how much coverage should you buy? The answer depends on the nature, size, and location of your business. At a minimum, most businesses need general liability insurance (or a BOP) and workers' compensation insurance (if they employ workers). Those that use automobiles in their operations also need a commercial auto policy. If you aren't sure what coverages you need, ask your agent or broker what types and limits of insurance businesses like yours typically buy.