How Much Does Business Insurance Cost?

by | Mar 17, 2021 | Resources, Starting a Business

Insurance is one crucial element you need when starting a business. It hardly matters that yours is a small business. Small business owners sometimes face the same risks that big companies face. For instance, every business is constantly in danger of losses and will benefit from general liability insurance coverage typically addressing that. Also, you may need insurance not just for you but for your employees. Insuring them could be your own way of keeping your business safe too. Hence, you need to make sure that you have an insurance policy available when you need it.

Some small business owners are well aware of the need for business insurance. In fact, they hardly need an incentive to go for business owners’ policy. However, an impediment is often the insurance costs. This fear is not unfounded. A business owner has to grapple with several money-consuming aspects of the business, especially at the start. Thus, incurring new costs may not seem like a wise thing to do. However, it is important to note that you do not pay the same fee for the different insurance types. Other factors such as whether you run the business with a partner or if a third party is in charge of your vehicles or other properties could significantly affect costs.

Usually, an insurance agent has the responsibility of explaining the intricacies of the costs to you. Nonetheless, the discussion here will still be rather helpful. If you’re wondering, how much does business insurance cost, you’re in the right place. This guide discusses all you need to know and more.

Signing business insurance

How Insurance Companies Determine Your Premium

First of all, what is a premium? This is a term you will definitely encounter when any insurance company offers you any policy. The premium is the money you pay in exchange for the policy. You may pay this sum periodically, maybe monthly, bi-monthly, or even annually. This might even vary further because the insurance company may require you to pay the entire premium before the coverage begins. In calculating your premium, the insurance agency typically considers a couple of factors. Learning these considerations could help you identify risk factors, positioning you to pay less. Below are a couple of factors the insurance company could consider.

Insurance Policy Broker

Type of Business

One of the factors that affect your insurance cost is the type of business you run. The higher the risks, the more you have to pay. The insurance premium for running a floral business will be very different than that of, say, a food truck business.

Limits of Coverage

The kind of coverage you go for will determine the costs, too. This is because your claims will also depend on the coverage you have. Thus, if the insurance agency has to pay a huge sum if the insured event occurs and you want to access your compensation, they will have to ask for more premium upfront. 

Age

The premium you pay for your insurance coverage is affected by your age. Insurance companies consider the likelihood that the insured will need to use the insurance. They then fix the insurance cost with this in mind. As a small business owner, insurers will typically consider the possibility of a fire happening (if it is fire insurance) or any other unforeseen circumstance and fix your premium afterward.

Type of Coverage

Insurance costs could significantly increase based on the type of coverage you go for. As a general rule, a coverage with higher risk will attract a higher premium. Thus, if your risks include property damage, your premium would be higher than that of any other person who doesn’t have that as part of their coverage.

Other Personal Information

Beyond your business needs, an insurance company might also consider other personal information of the insured. Small business owners often are surprised that they must provide personal information when getting an insurance policy. It is not out of place for a company to demand that. Of course, the extent of the personal questions would be broader if you are going for a personal policy. However, some aspects of your personal life might be necessary to determine how much your business pays as a premium.

Competition

The general cost of the insurance, i.e., the amount of the insurance and the premium you pay on it, can be affected by competition in the insurance industry. Thus, always be wary when agents are forceful with the advertising of their offers. Always consider your business needs, and then compare what other insurance companies offer. Do not just consider the business insurance of the company; look at its offers cohesively. For instance, a company’s third party vehicle policy might offer insight into how the insurance company runs its business.

It might be great to bear in mind that there is no set amount for premium. Customers are often surprised to find that they are expected to pay a higher premium even when they went for the same business insurance as the next person. This is why it is important to peruse independent customer reviews before you make a decision. Customers are often the most reliable when it comes to sourcing information for your coverage. More so, it is always smart to go beyond what the insurers tell you and get to a conclusion yourself. When confused, speak to an insurance agent.

How to Calculate Business Insurance Cost

As already stated, there is no general amount for small business insurance. The total cost will depend on the type that you signed up for. Below we will discuss some of the policies you should consider for your small business. We will essentially be killing two birds with one stone. That is, you will be learning about a possible insurance policy to consider while also coming to terms with how much it’d cost. No doubt, learning this from the start will help small businesses be on the same page as the insurance companies.

Calculating Business insurance

General Liability Insurance 

Regardless of the kind of business you run, you need a general liability policy. This type of insurance policy protects businesses from everyday liability. A general liability insurance option could include property damage, an infestation of malware, etc. The general liability insurance cost varies. However, the standard is between $400 to $500. The insurance cost may also be affected by the policy limits. Limits of $1 million and above could increase your costs.

Professional Liability Insurance

Professional liability coverage is available to those who have professional jobs. Thus, lawyers, doctors, bankers, etc., often take up this kind of policy. You may be thinking that businesses may not incur professional liability and thus have no need for this sort of insurance. However, that is not so. There may be a crucial connection between your business and a profession, especially if you run a skill-based service. In any case, if you are unsure, then business liability insurance might serve you best. 

Commercial Auto Insurance

Commercial auto insurance covers the vehicles you use for your business. This means that if a car is used solely to run errands at home, it cannot come under this insurance policy coverage. The insurance costs on an auto policy will also depend on the types of vehicles you have and what they are used for. The premium on auto insurance for trucks won’t be the same as for a small car. The basic annual premium for commercial auto policies is somewhere around $1704.

Workers Compensation

If you are one of the businesses with employees, you need a workers’ compensation insurance policy. As a small business owner, this is one of the requirements you are obligated by law to fulfill. The way to calculate the cost for this kind of policy is by considering the number of employees, payroll, the classification of your business, etc. However, the aggregate premium most companies demand is somewhere around $560. If you have employees carrying out high risk tasks, e.g., if you are into construction, landscaping, etc., you would significantly pay more. 

Business man

Conclusion: Business Insurance Cost

Sometimes, insurers and agents are mostly looking out for themselves when they advertise their offers. However, businesses are better protected when they are under coverage. Some factors to consider while getting a policy includes your type of business, privacy policy, costs, etc. For the latter, we’ve discussed what you need to know.

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<span style="font-size:12px;font-weight:500">Author</span><br><a href="https://wealthpursuits.com/author/kevin/" target="_self">Kevin</a>

Author
Kevin

Kevin is an ambitious entrepreneur that is obsessed with all things related to finance. From a young age, Kevin has always been involved with side hustles ranging from online selling to freelance work. Over the years, Kevin graduated from side hustles and started launching multiple online and offline businesses. Kevin is a serial entrepreneur who loves starting new businesses and exploring all things related to business and finance. He is constantly looking for new ways to save money, invest money, and create income streams.

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