How Much Will Insurance Cost for My Small Business?

Premiums Based On Many Factors

Business woman surrounded by question marks

If you are shopping for business insurance, one of the first questions you are likely to ask is, "How much will it cost?" Insurance premiums can be difficult to predict because they are based on a variety of factors. Nevertheless, you can estimate your cost using data that is available online.

What Determines Your Premium?

There are many things your insurer might consider when determining the price you pay for an insurance policy. Here are some examples:

  • Your industry and type of business. Insurers asses insurance applicants based on their risk of losses. Businesses that operate in hazardous industries generate more risks so they pay more for insurance than their less risky counterparts.
  • Your loss history. A business with no prior losses will pay less than a similar business that has a poor loss record.
  • Location of your business. Rates vary by geographical area.
  • Years in business. A well-established business with increasing revenue may pay less than a business that doesn't have a solid track record.
  • Source of coverage. Some insurers charge more or less than others for equivalent coverage.

Insurers use different types of information to price different types of insurance. For instance, your payroll will be used to calculate your workers compensation premium but your payroll has no bearing on your commercial property premium. Likewise, your property values are used to determine your property premium but are not relevant to your workers comp premium.

Insureon Provides Some Guidelines

Insureon is an online insurance agency that caters to small businesses. The company tracks the premiums its customers pay for various types of insurance and publishes some data on its website. Small business owners can use this data to estimate their cost of insurance.

Many of Insureon's customers have fewer than five employees and generate less than $100,000 in annual revenue. If you employ more workers or generate significantly higher revenue, you may pay more than the median indicated.

Cost Varies By Type of Coverage

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

General Liability

Virtually all businesses need general liability insurance to protect themselves against third-party bodily injury and property damage claims. Insureon's customers pay a median cost of $500 for general liability insurance but the premium varies by industry. For instance, the median premium for businesses in the construction industry is $825. Landscaping businesses and cleaning companies pay about $530, while a photography business might pay only $275. About 48 percent of customers pay between $300 to $600 per year.

Your general liability premium partly depends on the limit of insurance you buy. A majority (92 percent) of Insureon's customers purchase a general liability limit of $1 million per occurrence and $2 million aggregate.

Business Owners Policy

Many small businesses purchase a business owners policy (BOP), a package policy that includes both general liability and commercial property coverages. For Insureon's customers, the median price of a BOP is $636. As with general liability insurance, the premium varies by industry. For example, businesses in the food and beverage industry pay a median premium of $1,608. Retailers pay about $788 while consultants and accounting businesses may pay only $500.

Errors and Omissions

Businesses that provide expert advice or specialized services to others need errors and omissions (E&O) insurance. Examples are architects, structural engineers, and accountants. Insureon's customers pay a median cost of $710 for an E&O policy. Most customers purchase a policy with a $1 million limit for each incident and a $1 million aggregate.

Some professionals generate more or costlier claims than others. Accordingly, higher-risk professionals pay more for E&O coverage than those with lower risks. Insureon's customers that are building design professionals pay a median premium of $1,705 for an E&O policy. Real estate professionals pay about $665 while accounting businesses may pay only $400.

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.

Insureon's customers pay a median annual premium of $560 for workers comp insurance. Some businesses pay much more. Examples are construction businesses ($3,264), landscaping companies ($2,769), and cleaning services ($1,813). Some businesses pay less than the median. Examples are information technology companies ($436) and accounting firms ($396).

Commercial Umbrella

A commercial 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 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). Many businesses buy standard limits of $1 million per occurrence and $2 million aggregate.

According to Insureon, an umbrella with a $2 million limit typically costs 25% more than a policy with a $1 million limit. The cost of a $3 million umbrella is more than 110% of the cost of a $1 million policy.

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.