If you know anything about insurance, you know that it can be pricey. Business insurance is no exception. Protecting your small business with insurance is extremely valuable, but like pretty much everything in life, it’s going to cost you. The question is—how much?
In this guide, I’m going to shed some light on the cost of business insurance. Spoiler alert: it varies based on lots of things, including the type of business you run and the exact policy you want. Then, I’ll wrap it up by sharing some ways that you can save money on coverage.
The cost of business insurance
If you’re thinking about investing in small business insurance, you probably want to know how much it’s going to cost, right? Here’s the truth—the cost of business insurance is different for everyone.
Before I move on, I want to mention that business insurance is not a single policy, like renters insurance. When I say business insurance, I’m really talking about a collection of insurance policies that are designed to protect businesses, like general liability insurance and workers’ compensation.
So, that leads me to my next point. The cost of business insurance is going to depend on the type of policy you get. The only way to know how much you’ll pay is to get a personalized quote from an insurance company.
However, to give you an idea of what you might pay for business insurance, I scoured the internet and found sample rates from a few reputable providers.
Here’s a look at the average and median monthly premium ranges for some of the most common small business insurance policies, according to Insureon and Progressive:
|Type of policy||Average monthly premium||Median monthly premium|
|General liability insurance||$42 – $57||$53 – $65|
|Business owners’ policy||$53 – $85||$84 – $99|
|Professional liability insurance||$50 – $59||$46 – $97|
|Workers’ compensation insurance||$47 – $80||$86 – $111|
What factors impact your business insurance premium?
At this point, you know what business insurance might cost you. Now, however, I want to explain which factors insurance companies are going to look at when they calculate your unique rate. You could end up paying much more or much less than the sample rates above based on the following factors:
The industry your business operates in
The cost of your business insurance is directly tied to the industry your business operates in. This goes for pretty much any type of policy. The more risk you and your employees face on a daily basis, the higher your insurance premium will be.
So, for example, it’s safe to assume that a house cleaning business is going to pay more for insurance than a web developer who sits at a desk all day. Even if your business takes all the right safety precautions, you’re going to pay a rate that reflects the risks in the industry.
The number of employees you have
Another big factor that will impact the cost of business insurance is the number of employees you have. I should note that this includes both full-time and part-time employees. The more employees you have, the more your business insurance is going to cost because there’s more opportunity for things to go wrong.
Before I move on, I want to quickly talk about workers’ comp insurance here. If your business has one or more employees, workers’ comp is a legal requirement in almost every state, which is not the case with other business insurance policies. Don’t skip workers’ comp just to get a lower premium. If you get caught, it has major consequences, like huge fines and even jail time.
The amount of coverage you need
Like with any insurance policy, your premium is based on the amount of coverage you need, which is technically called the policy limit. Choosing a higher policy limit means the insurance company will provide more compensation in the event of a covered claim, but you have to pay more for that extra protection.
When you buy business insurance, choosing an appropriate level of coverage is important. If your policy limit is too low, your insurance company won’t step in to cover the full cost, which means you could end up paying out of pocket.
The deductible you choose
Your business insurance deductible is the portion of the claim that you’re required to cover before the insurance company will reimburse you. You get to choose your deductible when you sign the policy, but keep in mind that your deductible will impact your monthly insurance rate.
As a rule of thumb, the higher your deductible is, the lower your monthly premium will be, and vice versa. Choosing a high deductible can help you get cheap coverage, but I recommend choosing one somewhere in the middle. If you can’t afford to pay your deductible at the time of a claim, you might not get any help from your insurance company.
The insurance company you work with
The last factor that will impact the cost of your business insurance premium is the actual insurance company that you purchase coverage from. As you saw in the table above, business insurance premiums fall into a range, and you’ll get slightly different quotes from every insurance company for the same policy.
When you’re shopping for business insurance, I suggest doing some research to find a few companies that have what you’re looking for. The first company you find on Google is probably a good option, but it might not be the best choice for your needs.
How you can save money on business insurance
Business insurance can be expensive, but fortunately, there are ways that you can save money.
First and foremost, I recommend getting quotes from a few different providers before choosing one. Speaking from experience, the first insurance company you land on is rarely the cheapest.
Another way to save money is to bundle your coverage. Most insurance providers will give you a discount if you purchase more than one policy. So, if you need general liability insurance, commercial property insurance, and workers’ comp, buying them from the same company will probably be cheaper than using three separate providers.
The last tip, which I mentioned earlier, is to think about raising your deductible. Choosing a high deductible is an effective way to get a lower premium. Just keep in mind that if you ever need to file a claim, you’ll be responsible for the higher out-of-pocket cost.
Is business insurance worth the cost?
Hopefully, I haven’t scared you away from buying business insurance after going over the potential costs. After all, the truth is, having business insurance really is worth the cost (most of the time).
Business insurance protects your company legally and financially in the event of a third-party lawsuit or an employee lawsuit. Unfortunately, these types of lawsuits are more common than you think, and they can be extremely expensive, even if you did nothing wrong.
The main benefit of business insurance is that it pays for some or all of your legal costs if your business gets sued. Without business insurance, you have to pay out of pocket to hire a lawyer, go to court, battle the lawsuit, and potentially settle with the other party. Just the thought is making my bank account cringe.
Ultimately, the decision to buy business insurance is up to every individual business owner, unless it’s legally required, like workers’ compensation. If you’re willing to bet that your business will never get mixed up in a lawsuit, maybe you don’t need insurance. But if you’re like me, and you want peace of mind, investing in business insurance is a smart move.
I also want to add that one of the perks of business insurance is that you can easily mix and match policies. That means you only have to buy as much coverage as you want. You could purchase 10 policies, or you could purchase two. Usually, it’s entirely your choice, as long as you meet your state’s, your landlord’s, and your client’s legal requirements.
Business insurance can be expensive, but the cost is different for everyone. Premiums are based on individualized factors like your industry, the number of employees you have, the type of policy you purchase, and the amount of coverage you need.
As a business owner, having insurance can come in handy. Not to mention, it can save you tons of money in the event of a third-party lawsuit. If you want insurance but are worried about the cost, start by purchasing basic policies that make sense for your business. You probably don’t need to spend hundreds each month, especially if your business is small and low-risk.
I strongly recommend getting quotes from a few different companies for the type and amount of coverage you need before you decide on a provider. That makes it easy to compare quotes and find the company that can offer the lowest price.