5 Factors that Impact the Cost of Small Business Insurance
Starting a New Business and Insurance Considerations
Starting a new business is incredibly exciting. You get to choose a name, design a logo, and find a location, making your dreams come true. Although insurance might not be as thrilling as creating a menu or decorating your office, it’s crucial for your business’s success. That’s why InsuranceAdvisor.com focuses on familiarizing clients with the different types of business insurance. Here, we’ve explained the five main factors that influence the cost of small business insurance, along with other important considerations.
What is Small Business Insurance?
Small business insurance helps protect a business's assets, its customers, and employees from losses due to events that happen during a typical workday at the worksite or in the office. The right type of small business insurance coverage can help cover expenses from accidents, natural disasters, professional errors, and employee injuries.
One type of small commercial insurance is a business owner's policy (BOP). A BOP combines basic required coverages, such as general liability, property, and business interruption, into one bundle for a lower premium. BOP coverage can also be customized to meet the exact needs of the small business owner. General liability provides protection to a business for claims and lawsuits against it for bodily injury, property damage, or personal and advertising injury arising out of the business’s operations. Property insurance covers buildings and business-owned items damaged by the covered perils in the policy, such as fire, theft, and wind.
Business interruption, also called business income coverage, is triggered when there is insured physical damage to the occupied building that forces the closure of the business. Extra expense insurance reimburses additional costs incurred to expedite the recovery process, such as renting temporary office space, expediting equipment or materials, and other expenses that help mitigate the loss of income and resume operations quickly.
What are the Most Common Types of Business Insurance?
Small business insurance comes in different types to meet various business needs. Unlike personal liability on a homeowners’ policy, commercial insurance covers the legal business entity, its owners, and employees for liability due to negligence. It also offers higher liability limits and is tailored to the business's specific industry and activities.
We understand business risks and offer different insurance options to our clients. Common types of small business insurance include:
- General Liability
- Professional Liability
- Property Insurance
- Commercial Flood
- Business Interruption Insurance
- Workers’ Compensation
- Commercial Auto Insurance
- Employment Practices Liability Insurance
- Cyber Insurance
- Management Liability Insurance (D&O)
- Malpractice Liability
- Crime Coverage
Factors Affecting Small Business Insurance Costs
Let's review each of these factors affecting Small Business Insurance Costs:
1. Annual Revenue
If you're like most business owners, you're working hard to increase your revenue each year. But remember, as your business grows, so will your insurance premiums.
Insurance companies see higher revenue as a sign of more customers, more products sold or services offered, bigger premises, and more employees, which increases your exposure to loss. If your company gets sued (which can happen to anyone), your insurance company wants to know how much you and they might be liable for.
2. Business Location
Even if you have an e-commerce business, where the business is located affects your insurance premiums. The larger your building, the higher value, the bigger property insurance claim settlement. If your location gets a lot of visitors, which equates to more sales, the higher your general liability premium will be. The condition of your building also matters. Newer buildings have lower property insurance premiums than older ones.
Your business’s physical location is important too. If it's in a high-crime area or a place prone to flooding, your insurance will cost more. The state and city you are in can also impact costs. Some states are more favorable to plaintiffs in lawsuits, which can increase expenses if you get sued. If you can choose your business location, consider how "insurance-friendly" the state is before deciding.
3. Employee Payroll
The number of employees you have impacts more than just health insurance. Employee payroll can also affect General Liability, Errors and Omissions, and Workers’ Compensation policies. Each insurance company calculates premiums differently, but higher payroll means higher insurance costs. Insurance costs for workers’ compensation vary based on the roles of the employees and whether they work in the office or in the field.
4. Type of Business
One of the major factors that affect your business insurance costs is the industry of your business. Different industries carry different levels of risk, which significantly influences your insurance expenses. For example, a construction company generally faces more risks compared to a bookkeeping office, so your insurance agent will likely ask detailed questions about your specific line of work.
The kind of business you own impacts your insurance premiums. Insurance companies need detailed information about your operations. If you run a restaurant where customers grill their food or if your business requires employees to enter customers' homes or interact with children, these factors increase your risk and, consequently, your insurance costs.
5. The Policy You Want
Asking “How much does business insurance cost?” is like asking “How much does a car cost?” It depends on the features you want. The additional coverage you add, the higher your premiums will be, just like extra features on a car cost more. Sometimes, your business type will determine the insurance you need, but other times, you get to choose.
Generally, if you have a low-risk operation, you can start with a Business Owner’s Policy, which contains General Liability Insurance, Commercial Property Insurance, and Business Interruption coverage. Then, you can add other policies based on your needs.
Final Words
Insurance might not be the most exciting part of planning a business, but it’s crucial to avoid settling for the cheapest policy and hoping for the best. Instead, choose your coverage based on your level of risk. When you need to file a claim, you'll be glad you invested in a better policy.
Every business is different, so it's hard to predict the cost of Small Business Insurance. For the most accurate quote, it's best to contact us to speak with a licensed agent.
Why Choose InsuranceAdvisor.com for Small Business Insurance?
Insurance Advisor’s goal is to be one of the leading providers of business insurance policies for small businesses. From specialized workers' compensation coverage to flexible business owners' or commercial package policies, we aim to protect your business with the insurance it needs to be successful.
We understand what it takes to protect small businesses against a wide range of risks. We offer the coverage you require with the personalized attention your business deserves. For more information about our small business insurance policies, please contact us today or request your quote at www.InsuranceAdvisor.com.