How Much is Business Insurance?
For business insurance, count on spending as much as 20 to 30 percent of gross sales as a general rule of thumb, for comprehensive coverage that includes primary business coverages and employee health and life insurance benefits.1 But costs can vary widely depending on the types of coverage selected and a variety of risk factors specific to the particular business being insured. Most small businesses pay less than $700 in annual premiums.
Business insurance can help pay the costs of damages claims against your business in the event of an accident. Without the right type and amount of business insurance, you may need to pay those costs out of your own pocket. In most states, there are certain requirements for the types of business insurance a company must have. For example, most states require businesses with employees to have Workers’ Compensation insurance.
Most states require businesses with employees to purchase workers’ compensation insurance. If you or your employees will be driving for work purposes, you’ll probably need commercial auto insurance as well. A general liability insurance policy may also be necessary as it helps cover the costs of property damage and injury claims caused by your business.
Business insurance costs can vary greatly based on the type of business you own. Industry type, public visibility, business location and other factors may also contribute to the cost of business insurance.
- Industry Risk: Typically, riskier businesses pay more for business insurance. Risk factors can include financial and physical risks to the business, its employees, vendors, customers and more.
- Business Location: Businesses located in heavily populated areas often experience a higher likelihood of crime or vandalism. This can cause their business insurance rates to be higher.
- Public Visibility: Well-known businesses in the public eye may be targeted by claimants more often than lesser known companies. For this reason, insurance rates may increase with a business’s notoriety.
- Payroll Size: Workers compensation benefits are based on payroll. The larger the business’s payroll the higher the workers comp insurance premium payment.
- Coverage Levels: Ultimately, the kinds of insurance coverages purchased and the dollar amount of the coverages limits determine how much your business insurance will cost. The more kinds of coverage and the higher the coverage limits, the more you will pay in premiums. Sometimes, choosing a higher deductible can help lower your monthly or annual premiums.
What is the Average Cost of Business Insurance?
It’s difficult to determine the average cost of business insurance. This is because different small businesses have unique coverage needs and their insurance costs can differ widely based on their level of risk. The average cost of all small businesses’ insurance policies would have to factor in businesses at every risk level. This information would not be helpful to any single business looking to estimate what its insurance costs could be.
A better approach may be to research the average costs of business insurance in your specific industry. Typically you can find information for your industry on the average cost as a percentage of gross income for example. It’s more realistic to plan your insurance overhead cost based on your industry type, size of business, number of employees and any unique coverage needs.
Choosing the Right Coverage
To choose the right coverage for your small business, consider starting with the basics - essentials like general liability and property insurance, and then move on to optional coverage to cover the risks unique to your business.
General liability insurance covers typical liability claims such as slip and fall accidents at your business and damage your business may cause to another person’s property.
Commercial property insurance covers the costs of damage to your business from a covered incident. Property insurance can even cover damage to furniture, equipment and documents that your business owns.
Consider purchasing a small Business Owner's Policy (BOP), which combines general liability and property insurance in one policy. The advantage of doing this is it’s often more economical, and you get two separate primary coverages but get to manage them under one policy. This means only one bill and less hassle.
Professional liability insurance is also an essential coverage for most small businesses. This coverage helps protect your company against the cost of claims that errors were made in the products, goods, or services, you provide. If you’re a service provider, consultant or manufacturer, consider including professional liability in your business insurance strategy.
Once you have your primary coverages in place, you may want to address the risks more unique to your particular business. There is a wide variety of optional coverages available that you can add to your BOP to customize it to your business’s specific needs.
For example, business interruption insurance can help cover lost business income when your business is temporarily unable to operate due to a covered incident like a fire or storm. So, if a covered incident causes the power to go out at your business for three days, business interruption insurance can help replace your lost income during the power outage.
Commercial auto insurance is an essential coverage if you or your employees drive for work purposes. For example, employees drive for your company to deliver goods, products or services to customers and clients, you’ll want to purchase this business auto insurance coverage.
Mistakes to Avoid when Shopping for Business Insurance
Some of the biggest mistakes to avoid when buying business insurance are:
- Not budgeting appropriately for the costs
- Assuming personal insurance will cover business risks
- Leaving gaps in your coverage
- Not consulting with a professional
If you have a lower risk business, assume you’ll need to spend approximately 20 to 30 percent of gross income on business insurance1. Depending on the specific risk factors facing your business, you may need more. So keep this in mind as a minimum requirement when budgeting insurance costs. Businesses with more and higher risk factors, such as those that operate in financial consulting or manual labor industries should expect to pay a higher percentage of gross income for business insurance.
It’s also important that you not make the mistake of relying on personal insurance to cover business risks. Your personal auto and property insurance are not designed to cover business claims. Even if you are working out of your home, you will need to adjust your insurance to cover business property and business general liability claims. For example, assume you ran a business from home and a client stopped by to discuss a project. If the client gets injured while in your home and makes a claim, your personal property insurance might not cover this claim because the damage was business related.
When shopping for business insurance consider if there are gaps in your coverage. If your business has a storefront, then you will most likely need general liability insurance. This can help cover your business if for example, somebody slips and falls in your store and makes a claim against you. But if your business handles online payments and customer data, you might also need data breach insurance. This can help cover your business in the event that a data breach exposes sensitive customer, employee or vendor information. It’s difficult to fill the gaps in your coverage if you are not aware of all the likely threats to your particular business.
That’s why you doing the proper research and consulting with an experienced small business insurance professional is advisable. Larger businesses and corporations often have risk management professionals with the expertise to determine what insurance coverages are needed to protect their enterprises. For a small business, an experienced business consultant or insurance agent can be a valuable asset.
A good insurance agent or consultant will spend time learning about your business, its risks, its growth plan, and your budget. She will incorporate this information into a recommendation for an insurance solution designed specifically to help protect your business and fit within your budget.
You can also learn a lot about the business insurance you may need by going online to get a quote from The Hartford. This quoting tool allows you to answer specific questions about your business to get an insurance quote and you can talk to an insurance professional as well.
Business Insurance Almost Every Company Needs
How Much Does General Liability Insurance Cost?
General Liability Insurance costs are largely determined by the type of work your business does, its location, and the number of employees you have. Usually, the more employees, more dangerous the type of work performed, and the less safe the work location – either due weather conditions, geography, crime rates, or other local factors – the higher your general liability insurance premium.
General Liability Insurance helps protect a business from certain liability claims. These can include property damage, bodily injury and personal and advertising injuries. As an example, imagine a landscaping business is doing work on a customer’s property. One of the landscapers accidentally backs a truck up and knocks over a tree on the customer’s property. When the customer makes a claim, General Liability Insurance can help cover the costs related to the claim.
How Much Does Professional Liability Insurance Cost?
Professional Liability Insurance costs are typically a factor of your company’s number of employees and their employment status, as well as your business’s potential for severe losses. More employees cost more to insure, and full-time employees cost more to insure than part-timers. When it comes to severity potential, businesses that offer more costly services or that deal with more expensive assets, typically pay more for professional liability insurance.
Professional Liability coverage, also called errors and omissions insurance or E&O, helps protect your business from the costs of claims that errors were committed in the products or services provided by your company.
For example, a contracting company is hired to redo a restaurant’s kitchen. After completing the job, the restaurant owner files a claim because the contracting company didn’t install a cooktop in the right location. Professional Liability Insurance can help cover the cost of the claim made against the contracting company.
How Much Does Commercial Umbrella Insurance Cost?
The costs of Commercial Umbrella Insurance are usually determined by the total amount of coverage bought under the policy, your business’s credit history and its public visibility. Commercial Umbrella policies can cover a business for up to several million dollars. The higher the policy’s coverage, the more it will cost. Typically, the better the business’s credit, the lower their cost for Commercial Umbrella Insurance. High visibility businesses can have a higher frequency of liability claims made against them. Because of this, they may pay more for their Commercial Umbrella Insurance.
Commercial Umbrella Insurance extends a business’s liability coverage. For example, imagine a printing business has a Professional Liability policy with a coverage limit of $250,000. That printing business makes a mistake in their services and their client makes a claim against them for $300,000. If the client is awarded the full amount of the claim, Commercial Umbrella Insurance can help cover the amount that exceeds the $250,000 limit of their Professional Liability Policy.
How Much Does Workers’ Compensation Insurance Cost?
The cost of Workers’ Compensation premiums can be calculated per $100 of annual payroll, based on a simple formula: Classification Code Rate X Experience Modification X Payroll (per $100) = Premium. (Calculation for reference purposes only and actual premium calculations can be more complex.) The classification code is assigned based on the hazards and exposures of the work. The experience modification is based your business’s claim history. This calculation can give you a general idea. Rates can vary by state, industry and claims history.
Workers’ Compensation Insurance is required by most states. It provides benefits to employees for work-related injuries or illnesses. These benefits include coverage for medical costs, wages lost from time off of work and more. As an example, if an employee of a manufacturing company injures his back while loading pallets onto a truck, Workers’ Compensation can help cover wages the employee loses while recovering. It can also help cover costs of his physical therapy and more.
How Much Does Commercial Property Insurance Cost?
The cost of Commercial Property Insurance is usually determined by the location and age of your business’s premises and the value of your business’s assets. Businesses located in areas that experience flooding, hurricanes or other natural disasters will most likely have to pay more for Business Property Insurance. If a business owns high-value assets such as equipment, machinery or inventory, its Business Property Insurance may cost more than a business that has less. Businesses located in older buildings or ones that are more easily damaged and need repairs, may cost more to insure as well.
Commercial Property Insurance helps protect the building a business owns or leases. It also helps cover business property such as tools, equipment, inventory and furniture. For example, if a real estate business has an office location that is damaged in a storm; Commercial Property Insurance can help cover the cost of the damage.
Top 6 Tips to Save Money on Business Insurance Costs
Bundling Coverage – BOP
One of the most popular ways to save money on business insurance is by bundling coverages. A Business Owner's Policy (BOP) is an easy way to do this. A BOP combines Business Property and Business Liability Insurance in one policy. Insurance companies sometimes offer discounts to business owners who bundle their coverages. Not only can this help businesses save money, but it is also more convenient. Instead of having to manage two policies and two payment schedules, businesses only have to manage one.
Review Coverages Annually
It’s also important that businesses review their coverages annually. As technology and industry trends change, so do risks. 10 years ago, data breach coverage was almost nonexistent. Today, businesses with less than 250 employees. 60% of those companies that are attacked close within six months because they didn’t have coverage. Reviewing coverages every year can shed light on new industry risks that businesses are not covered for. It can also help businesses find areas where they could reduce or eliminate coverage that is no longer needed or where they may take advantage of new offerings and opportunities to save.
Lower Risk Exposure
The Hartford’s Risk Engineering can help lower a business’s risk exposure. Our risk engineering experts can help evaluate a business’s workplace procedures and help train employees to become safer. This includes tips on ergonomics, emergency response plans and safety evaluations. All of this helps contribute to lowering a business’s risk exposure, creating a more efficient workplace and reducing costs.
Businesses can also cut the cost of their insurance by modifying their deductibles. Opting for a higher deductible can often lower an insurance premium. If a business decides to do this, it’s important to make sure that the deductible is set to an amount that the business can afford to pay. An insurance agent can help determine what the right level for a deductible is.
Paying Premiums Annually
Paying premiums monthly may feel like a cost-saving option. There’s less commitment to a large sum of money upfront. This might be a more convenient option for new businesses that are just getting a handle on their books and cash flow. But usually lump annual payments are less costly than the sum of monthly payments. Businesses can often save a significant amount of their yearly insurance cost by paying premiums annually.
Improve Security Protocols and Procedures
Adding fire safety, cyber security and workers’ safety programs can be a smart and effective way to help reduce your annual insurance costs. Though it may require some resources at the beginning to document policies and procedures and train your people, you’ll likely find that it’s worth it. The emotional toll on those affected and the financial fallout from a work accident will almost always cost more than the investment you make in preventative planning and training measures.
For example, training employees on how to probably use a fire extinguisher and handle small fires is a low-cost, or possibly even free, service you can get from the fire department. This training could mean the difference between a small fire in the break room that destroys a microwave, and a fire that destroys the entire building.
Improved security protocols and procedures can also help make your business more efficient. By addressing employee safety and ergonomics you can reduce employee absences due to illness and injuries. Ultimately, this can lead to an increase in productivity. Protecting your business with the right insurance coverages can also help you save money.
As little as 1 inch of floodwater in a 1,000-square-foot property can cause more than $10,000 in damage. Commercial Flood Insurance can help cover the costs of that kind of damage. Without Commercial Flood, a business may have to pay for the damage out-of-pocket. A cost like this could threaten a business’s survival.
The world of cyber threats is no less menacing to businesses than are natural disasters. In 2016, 55% of businesses surveyed claimed they experienced a data breach.2 The average cost of data breach is around $4 million. By adding Data Breach Coverage to a business insurance policy, businesses can help reduce the chances of becoming another statistic. Data Breach Insurance from The Hartford provides access to data security training, breach mitigation, and coverage to help handle the costs associated with managing a data breach.
Businesses are more at risk for liability claims now than ever before. On average, liability claims have increased by 8.7% every year since 1950. That means more and more businesses are being sued. Adding General and Professional Liability Insurance, and Commercial Umbrella, can help protect a business from the potentially devastating costs of claims and lawsuits brought against their company.