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Return To: Business Insurance – The Ultimate Guide
Business insurance is, essentially, a contract between an insurance company and a business. The latter pays a premium so the former can help recover, repair, or replace the latter’s covered assets in case they get damaged, lost, or stolen.
Business Insurance Costs depend on the type of policy as well as the individual circumstances of each business.
Some small businesses may pay more, while others may pay less. Learning what factors influence the costs of your policy can help you find the best combination of protection and price for your business.
How Are Business Insurance Costs Calculated?
Many factors are at play in determining the costs of a business insurance policy. Here are some of them:
| Factor | Effect |
| Business Operations | Not all types of businesses carry the same amount of risks. Certain types of operations are historically known to carry more risk, so they can also expect to pay more than the average business. For example, contractors are exposed to higher risks than financial advisors. |
| Annual Revenue | The greater the annual revenue, the more risk the business faces. This, in turn, can increase the cost of their business insurance policy. |
| Number Of Employees & Annual Payroll | The more employees the business has, the higher the cost of their insurance policy is. This is because the potential for claims is also higher with each additional employee. |
| Amount of Business Contents Coverage | The amount of coverage also affects the final rate the business is expected to pay. For instance, a policy with a $1 million/$1 million aggregate will typically cost less than a policy with a $1 million/$2 million aggregate. The aggregate limit, in this case, refers to the maximum amount that the insurance company will pay for a single claim within a specific term. |
| Amount of Building Insurance Coverage (if they own the building) | Property damage can adversely affect a business’s capital and cause business interruptions. The higher the amount of their building insurance coverage, the lower their business insurance cost is going to be. |
| Prior Insurance Loss History | If the business has made fewer claims for losses or damages in the past, they’re likely to be operating more safely than other similar companies. So, they might be able to obtain a lower cost for their policy. |
Each of these factors have an associated cost that the insurance company determines by using pricing models and historical trends.
When the insurance company determines the rate for the business, these costs are added up with their profit margin.
These costs may also change over time, as the financial demands of offering the policy may also fluctuate.
How Much Does Liability Insurance Cost For a Small Business?
General liability insurance protects small business owners from claims involving advertising injury, bodily injury, and property damage.
General Liability Insurance Costs vary depending on the industry, but high-risk industries usually pay more.
For instance, if the business operates heavy machinery or handles hazardous materials, they have a higher risk profile and are more likely to pay higher premiums.
A business may also pay more if they choose to add other forms of liability insurance such as commercial auto insurance, commercial umbrella liability, and employment practices liability.
Because businesses have evolved to rely more on electronic data and computer systems, it may be smart to also invest in cyber liability insurance.
How to Minimize Small Business Insurance Costs
Small businesses have it tough, and it makes sense to save money wherever possible. Insurance premiums are a necessity, and even a legal requirement in most places. There are, however, a number of ways for small business owners to get the best value for their dollar.
Here are some ways to minimize the costs of business insurance:
- Shop Around: Comparison shopping is a good idea, since two insurance companies may charge different rates for the same level of coverage.
- Minimize Risks: When business owners make a claim, it almost always leads to a corresponding hike in insurance premiums. To avoid this, they should regularly do risk assessments and implement a safety training program to reduce risk exposure.
- Purchase Package Policies: Most of the time, it’ll cost less to buy a package policy instead of multiple individual policies. For instance, a business owner’s policy often includes both commercial property insurance and general liability insurance.
- Pay Premium Up Front: Most business owners tend to pay premiums monthly or quarterly because of the high costs of paying them all at once. Some insurance companies, however, offer discounts and other incentives like an annual pay discount.
It’s also important to remember that while reducing business insurance costs is definitely possible, the business owner may have to make some trade-offs. Take the time to speak with a business advisor or an experienced insurance agent to avoid making costly mistakes.
Conclusion
When shopping for small business insurance, one of the first questions that any business owner will ask is “How much will it cost?” There’s no standard answer to this question as premiums vary, since they’re based on the factors laid out above.
Shopping around to find cheaper insurance quotes can be advisable!
It’s more important to make sure your business is protected properly!
Find a policy that won’t make you go over your budget, but also won’t mean cutting corners.