How much is small business insurance, and is it worth the cost? Here’s what to know, weigh, and consider for your company.
Small business owners typically spend their days focusing on the best ways to serve customers and guide employees. When the topic of business insurance coverage surfaces, such busy people rarely ask much more than the annual premium cost.
At the same time, insurance policies offer vital risk management for small businesses and startups. According to the Federal Emergency Management Agency (FEMA), some 25% of businesses don’t reopen following a disaster.¹ Business interruption insurance and higher policy limits for commercial property insurance might have saved those that fail. Thus, small business insurance offers vital security for growing companies.
How much is small business insurance? Like other insurance, the business insurance cost depends upon multiple factors. These can include the business size and type, number of employees, the insurance company, and other factors. We can’t provide an exact small business insurance cost for your company in this article. However, we can offer average prices and explain various policies. This information will help you make informed, sensible business insurance choices.
What impacts business insurance costs?
Your business’s insurance costs will depend upon several factors unique to your business. Consider your company in light of these critical points:
- Industry or profession. For instance, a doctor’s office will need professional liability insurance, but a toy store probably won’t. Service industry companies generally pay more for general liability insurance than other businesses.
- Size. Typically, larger companies pay more than smaller ones. Insurers may consider the size of facilities or the number of employees.
- Location. Your business location might impact its risks. For example, some places suffer from higher crime rates, frequent storms, or more traffic. Insurance cost often reflects these risks.
- Growth. As your company grows, you might hire more employees and need more space. In turn, expect commercial property insurance to change.
- Claims history. This can affect multiple types of insurance. For example, the more workers compensation claims in a company’s history, the higher the premium will likely be. If your company has a history of driving accident claims, your commercial auto insurance company may consider you a greater risk and charge higher premiums.
Types of business insurance
Familiarize yourself with common types of small business insurance:
- Commercial property insurance protects against losses from physical property damage.
- General liability insurance protects against liability claims for bodily injury or property damage.
- Business owners policy (BOP) combines commercial property and general liability insurance in one package, usually at a discounted rate.
- Business interruption insurance coverage pays the company in case of business interruption, or loss of income, because of a covered hazard.
- Workers compensation insurance offers employees benefits in case of work-related injuries or illnesses.
- Commercial auto insurance covers the business when employees drive for work.
- Professional liability insurance. Depending on the profession, insurers may refer to professional liability, malpractice and/or errors and omissions coverage. It covers against mistakes professionals make that might damage clients, patients, or customers. It’s different from a general liability policy.
- Cyber insurance, a.k.a. cyber liability insurance, can protect a business against damage to customers or noncompliance caused by issues with software, hardware, or data breaches. It’s become increasingly critical in this age of remote work and reliance on distributed systems.
How much is small business insurance for common policies?
How much does business insurance cost a typical small company? We’ve done the research based on published monthly averages from major insurers. These numbers won’t represent precisely what you might expect to pay because the cost factors insurers consider vary by company.
Estimated average monthly insurance premiums for small businesses:
- General liability insurance: $65
- Commercial property insurance: $63
- Business owner’s policy (BOP): $99
- Professional liability insurance: $97
- Workers compensation insurance: $111
- Commercial umbrella insurance: $129
Insurers may also offer business owners other bundling discounts for buying more than one type of coverage. For instance, a BOP combines property and liability coverage in one package. Handling multiple policies for the same client reduces administrative and marketing costs for the insurer. So they pass savings on to their clients.
How to control business insurance costs
Note that premiums may also depend upon:
- Policy limits. Most policies specify a maximum amount paid in case of a claim, even if damages exceed the limit. A lower limit could lower the premium.
- Deductibles. The deductible represents the amount the business must pay before the insurer pays its share.
Insurance policies offer small businesses a way to manage risks. Business owners may assume a little more risk by choosing a higher deductible or lower limit in exchange for lower premiums. Some insurers also offer discounts for paying multiple months in advance or taking action to minimize risks. Most importantly, business owners should shop around to find the most competitive rates from quality insurance companies in their local area.
Use small business insurance to manage risks
Business insurance might seem like a boring topic. Some business owners may not want the burden of paying extra premiums. At the same time, various types of coverage can offer essential risk management for growing businesses against numerous threats. Very often, small companies rely upon their insurance company as helpful risk management providers. After all, it’s in the insurer’s best interest to help their clients avoid claims.
Other types of business insurance, like group health insurance policies, can attract, retain, and protect valuable employees. Offering these extra benefits allows employers to demonstrate they care and helps employees manage their own risks.
1 Stay in Business after a Disaster by Planning Ahead, FEMA, 2018