Small Business Insurance Costs

How Much Is Small Business Insurance?

Smiling female florist at garden center. How much does small business insurance cost?

Learn the industry averages for different types of small business insurance.

Small business insurance costs vary by company and the coverages selected, as well as several other factors. Independent insurance agents factor in the coverages you select, how many employees your business has, your business's location, your business's industry and risk level, your business's claims history, and your business's annual gross revenue when determining the average cost of small business insurance.

Many small business owners choose to get a businessowners policy, or BOP, which can cost an average of $636 annually, or $53 monthly. For general liability insurance alone, a coverage needed by every small business, the average annual premium is around $500 annually, or about $42 monthly. Workers' compensation insurance, required by most businesses with employees, costs about $560 annually on average, or about $47 monthly. Next, we'll discuss the average cost of insurance for a small business in greater detail. 

Average Monthly Costs of Small Business Insurance

The table below breaks down the average monthly and median costs of different types of small business insurance coverage.

Type of Coverage
Median Monthly Cost
Average Monthly Cost
BOP Insurance
$53
$99
General Liability Insurance
$42
$65
Workers' Compensation
$47
$111
Commercial Umbrella Insurance
$75
$129
Professional Liability Insurance
$59
$97

Factors That Affect the Cost of Small Business Insurance

The coverage needed for your small business may vary, but the factors that affect the cost of your insurance policy overall tend to be similar. To determine the cost of your business's general liability insurance, BOP, commercial umbrella insurance, etc., insurance companies evaluate several factors. These range from your business's location to your claims history.

Industry

Depending on your small business's industry, it carries either more or less risk to insurance companies. Manufacturing companies that use heavy equipment are riskier to insure, and often pay more for their small business insurance. Similarly, bakeries use ovens and hot equipment that could easily lead to fires, so businesses in this industry can pay quite a bit above average for their small business insurance as well. Depending on the operations of your small business, you could pay much more or less for the same type of coverage as a business of the exact same size in a different industry. 

Location

The location of your small business also impacts its insurance rates. If the area you're located in is prone to tornadoes or hurricanes that could potentially damage your business, you could pay more for your small business insurance. Also, depending on your state's requirements for workers' comp or commercial auto insurance, you might be required to carry more coverage than a business in another state, and will therefore pay more for your overall policy.

Number of Employees

The size of your business and its team is another risk factor insurance companies consider when calculating the rate of your small business insurance. In a construction business with four employees, the cost of workers' comp can be as much as $3,264 annually. If that same business had eight or 10 employees, they could pay much more than that. But smaller businesses, like accounting firms with only a handful of employees, typically pay an average of only $396 annually for workers' comp. If your business has zero employees, you might not have to pay for workers' comp at all.

Payroll and Sales

The payroll and sales of your small business are another factor insurance companies use to calculate your premium costs. For starters, workers' comp costs are calculated by factoring in your business's annual payroll. Workers' comp average rates vary by state, but the National Academy of Social Insurance reports that they fall somewhere between $0.70 to $2.25 per $100 of monthly payroll. So, the larger your staff size and payroll, the more you'll pay for workers' comp. Similarly, the more your small business sells each year, the more general liability insurance it's likely to need, which can also drive up the costs of your coverage.

Prior Insurance Claims

Businesses that have already filed multiple claims can indicate a large risk for insurance companies, which can result in higher premium rates. Likewise, businesses with no prior claims signal a lower risk to insurance companies and can lead to coverage discounts or cheaper overall premium rates. If your small business has filed several workers' comp or commercial auto claims in the past, an insurance company might determine that something about your work environment or training practices is too risky. You might even be denied coverage by certain insurers. 

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Factors That Affect Small Business General Liability Insurance Costs

Small business liability insurance costs also vary depending on your business's industry and its inherent risks and operations. But on average, small business liability insurance costs between $300 and $1,000 annually. General liability insurance helps your business recover financially if a third party, like a customer or other visitor, claims you caused them bodily injury or personal property damage and files a lawsuit. General liability insurance can help reimburse your business for the legal costs, including attorney, court, and settlement fees. Without this coverage, your small business could go bankrupt after just one unexpected lawsuit.

Some factors that influence general liability insurance small business costs are:

  • Your business's location: Like all types of coverage, your location influences the cost of your liability coverage, too.
  • Your business's operations: If your business's operations put it at a higher chance of lawsuits, your liability coverage will be more expensive. 
  • The amount of coverage you choose: The more coverage you need, the more you'll pay.
  • Your selected deductible: Higher deductibles result in lower overall premiums. 
  • Your business's annual payroll: The number of employees you have and the overall annual payroll your business pays out also influence the cost of your liability coverage.

An independent insurance agent can help your business get equipped with the right type of liability coverage and further explain the factors that influence its cost.

Factors That Affect Small Business Workers’ Compensation Insurance Costs 

Small businesses are often classified as those employing fewer than 200 employees. The cost of your small business's workers' comp depends on exactly how many employees you have as well as your overall payroll. However, small businesses in Florida paid an average of $0.26 per $100 of employee payroll last year for workers' comp, while those in New York paid $0.07 per $100 of employee payroll. 

Some factors that affect small business workers' comp costs are:

  • Job specifications: The type of work your employees perform creates more or less of a risk to them and to your insurance company. The less risky the profession, the lower your potential coverage costs.
  • Prior claims: The fewer workers' comp claims you have on record, the better for both your insurance company and your coverage rates. Your business will be seen as safer the fewer claims it has on record. 
  • Company payroll: Since workers' comp rates are calculated per $100 of employee payroll, the higher this amount is, the more you'll pay for this coverage.

An independent insurance agent can help your business get equipped with the right type of workers' comp coverage and further explain the factors that influence its cost.

Factors That Affect Small Business Professional Liability Insurance Costs

Professional liability insurance protects your business in a way that general liability insurance doesn't. Professional liability coverage is designed to protect against harm that you can cause to the public based on your professional services, such as if you give advice that causes someone harm. It also protects you in case of professional mistakes, such as telling a client the wrong information which leads to harm. Small business liability insurance costs vary by industry and other factors.

So how much is professional liability insurance for a small business? It varies depending on these factors:

  • Number of employees: Often, the larger the size of your business's staff, the more you'll pay for professional liability insurance.
  • Risk level of the business: How risky your business's operations and services directly correlates to the cost of your professional liability coverage. Businesses with more costly services or that provide services that handle assets or private or sensitive client data often pay much more for this coverage than others due to the increased risk factor.

An independent insurance agent can help your business get equipped with the right type of professional liability coverage and further explain the factors that influence its cost.

Factors That Affect Small Business Commercial Auto Insurance Costs

Your personal auto insurance policy won't cover business vehicles and disasters that happen on the job in most cases. Your small business needs commercial auto insurance to protect against claims that might arise after traffic accidents involving company vehicles, as well as to get reimbursement for damage to or theft of your company vehicles. Without a commercial auto policy, your business could have to pay for the cost of repair or replacement to company vehicles out of its own pocket. It would also be vulnerable to lawsuit costs for related incidents.

Some factors that affect the cost of commercial auto insurance for small businesses include:

  • Vehicle usage: The amount of time and the distance your employees have to drive in company vehicles increase their risk factor.
  • Vehicle specifics: The make and model of your company vehicles impact your coverage rates, similar to how they do with personal auto insurance.
  • Driver histories: If your company's drivers have no prior traffic violations, they'll be seen as less risky to insure than those with more colorful driving records.
  • Company services: How your company uses its vehicles can also impact its coverage rates, such as if your company vehicles are used to make deliveries, etc. 

An independent insurance agent can help your business get equipped with the right type of commercial auto coverage and further explain the factors that influence its cost.

Factors That Affect Small Business Commercial Property Insurance Costs

The cost of coverage for your business's building and contents also varies depending on several factors, including the value of your business's property and the age of construction, as well as location. It's estimated that small businesses pay between $1,000 and $3,000 annually for their commercial property insurance alone. An independent insurance agent may be able to help you decrease these costs.

Discounts and Savings on Small Business Insurance

Fortunately, there are many ways to save on your small business insurance. Start by checking for these common discounts, available from many major insurance companies:

  • Safety training discount: You can save money on your small business insurance if you enforce mandatory safety training for your employees.
  • Paid-in-full discount: You can save money on your small business insurance by paying your entire year's premium up front in one lump sum.
  • Bundling discount: You can save money on your small business insurance by bundling several types of coverage together through the same carrier.
  • Claims-free discount: You can save money on your small business insurance by remaining claims-free for a period of several years. 

An independent insurance agent is a great ally when it comes to finding you the most discounts on small business insurance.

Understanding the Average Cost of Small Business Insurance

Small business insurance can help your company financially recover after a major disaster. These disasters can range from property damage to third-party lawsuits. Without small business insurance, your business could have to shut its doors permanently. Working with an independent insurance agent is the best way to have small business insurance coverage details outlined and explained. They can find you the right coverage at the most affordable rate in your area, as well as scout out any discounts you qualify for. 

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Why Choose an Independent Insurance Agent for Your Small Business Insurance?

It’s simple. Independent insurance agents streamline the process by shopping and comparing insurance quotes for you. Not only that, but they’ll also cut the jargon and clarify the fine print so you know exactly what you’re getting.

Independent insurance agents also have access to multiple insurance companies, ultimately finding you the best small business insurance coverage, accessibility, and competitive pricing while working for you.

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https://www.thebalancesmb.com/what-is-the-average-cost-of-small-business-insurance-4172224