One major challenge for small business owners is knowing which insurance policies they need and how much that business insurance will cost. Naturally, the particulars of your business will dictate what types of coverage are best for you.
Here’s an overview of popular business insurance types and some elements that can affect your company insurance cost.
Key Points
• Business insurance costs vary by your company’s industry, size, and location.
• General and product liability insurance average $504 annually.
• Cyber liability insurance, essential for data protection, costs an average of $1,740 per year.
• Reducing claims, bundling policies, and improving job safety can lower premiums.
• Having the appropriate amount of coverage is crucial to protect your business against financial and legal risks.
Types of Business Insurance Coverage and Costs
The many types of business insurance policies come with different business insurance costs. Average costs generally vary by business sector and the type of policy you buy. Still, a ballpark figure is useful to include in your balance sheet when you’re writing a business plan. The following average costs are taken from Insureon.
| Type of Policy | Description | Average Monthly Cost | Average Annual Cost |
|---|---|---|---|
| General liability insurance | Covers legal fees and judgments for lawsuits related to personal injury, bodily injury, advertising injury, and property damage that don’t result from professional negligence. | $42 | $504 |
| Product liability insurance | Protects companies from lawsuits or claims related to injuries or property damage caused by products they sell, manufacture, or distribute. | $42 | $504 |
| Commercial property insurance | Covers repairing, rebuilding, or replacing buildings and their contents and equipment after a covered issue (e.g., fire or vandalism). | $67 | $804 |
| Business owner’s policy | Includes general liability insurance and commercial property insurance. | $57 | $684 |
| Inland marine insurance | Covers inventory and equipment being transported to job sites, stored off-site, or shipped to customers. | $29 | $350 |
| Cyber liability insurance | Covers legal liabilities; recovery of reputation, lost data, and lost business income; and other consequences of a data breach. | $145 | $1,740 |
| Commercial umbrella insurance | Adds more liability coverage for costs that exceed the limits of primary business insurance policies. | $75 | $900 |
| Workers’ compensation insurance |
Pays for lost wages and medical bills if an employee is injured or becomes ill while working. It also protects the business from employee lawsuits related to the injury. Many states require this coverage for businesses with one or more employees. | $45 | $540 |
| Commercial auto insurance | Covers business-owned vehicles. In case of collision, it pays for repairs to the company car. Coverage can include medical bills for your employee and any passengers. | $147 | $1,762 |
| Errors & omissions insurance (aka professional liability insurance) | Protects businesses from lawsuits filed by clients claiming mistakes, negligence, or inadequate work during the provision of professional services. | $61 | $732 |
| Tools and equipment insurance | Protects a contractor’s tools and equipment from damage, theft, or loss. | $14 | $168 |
Recommended: Understanding Business Liabilities
Factors Affecting Insurance Premiums
The size and type of your business, the level of industrial risk, and your claims history are three important factors in determining your insurance premiums. Other aspects include payroll, sales, coverage, policy deductibles, and the location of your small business.
Note that for small business financing, you may be required to take out a policy to insure any assets you’re using as collateral.
Business Size and Type
The size of the business will drive the cost of the business insurance policies. Larger employers usually have to pay more for business insurance coverage. With more employees, it’s more likely that someone will experience injuries, incidents, or accidents. Businesses without any employees may be exempt from their state’s worker’s compensation requirements.
The type of business you’re in also affects insurance premiums. Not only are some businesses more risky than others — think construction or heavy machinery repair — but some businesses use expensive equipment or operate vehicles that may incur additional costs. If you’re applying for, say, a line of credit for your business, be aware that some lenders are likely to subject a company in a high-risk industry to stricter (and possibly costlier) underwriting guidelines.
The location of the business can also impact premiums. If your business is located in an area prone to natural disaster or high crime, your commercial property insurance is likely to cost more than a business in a low-risk area. States also have different regulations, such as workers’ compensation insurance requirements.
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Industry Risk Factors
As mentioned above, some industries are inherently riskier than others. Industries with higher risk will likely have higher insurance premiums. For example, general liability insurance costs would probably be higher for a construction company than for an accounting firm.
Claims History
A business that has made multiple claims in the past may be a red flag for insurance companies. Having a history of business insurance claims could indicate that the business is not taking proper steps to mitigate risk.
Average Cost Breakdown
The average cost of small business insurance is about $301 a month or $3,612 a year (unbundled) for general liability, commercial property, workers’ compensation and commercial auto insurance coverage. However, the exact cost varies greatly based on the type of business, its location and service area, claims history, policy bundling, and other factors. If your insurance premiums are unexpectedly high, you may want to look into boosting your working capital with an online business loan.
Bear in mind that having the appropriate insurance is a requirement for funding a business with a Small Business Administration loan.
How to Reduce Insurance Costs
Fortunately, there are some ways to reduce business insurance costs. The best way is to file very few claims against the insurance policy. Having a history of claims signals to insurers that the business may be inherently too risky or not good at mitigating risk. A company with a history of accidents, workplace injuries, or negligence lawsuits is a red flag for business insurance companies. It’s also a concern for lenders when you’re applying for startup business loans.
Some insurance companies will offer discount rates for actions you can take, such as bundling policies, investing in workplace safety training, and doing routine facility maintenance. Businesses may also get a discount by paying their premiums annually instead of monthly, or they may be able to lower their premiums by opting for higher deductibles.
Always shop around to find the best option for your business’s needs, qualifications, and budget.
Choosing the Right Coverage
Choosing the right coverage for your business can be difficult. Don’t necessarily go straight for the cheapest insurance policies. The cheapest options may not be the best fit for your business’s needs. For example, businesses that store personally identifiable information or credit card numbers may need to get cyber liability insurance that covers data breaches and customer notification expenses.
You should take a look at an insurance company’s online reviews, but bear in mind that they may not be conclusive. Insurance companies with many client complaints may indicate potential future difficulties for you when filing claims — of course, that’s not always the case. Check the website of your state’s insurance commissioner to learn more details about the company and its history.
The Takeaway
The average cost of small business insurance varies by industry, company size, and degree of coverage, among other factors. There are a variety of business insurance policy types to address each business’s specific needs. Shopping around for policies can save money, but the best way to keep insurance costs low is to file very few claims.
If you’re seeking financing for your business, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your business in minutes.
FAQ
What insurance does my business legally need?
The types of insurance that your business must have will depend on your company’s activities, location, and assets. Workers’ compensation insurance is required by the federal government for any business with employees. Commercial auto insurance is required in many states for businesses that own, lease, or rent vehicles. States may have additional legal requirements for other types of insurance; check your state government’s website for specifics.
How can I lower my business insurance costs?
The best way to reduce business insurance costs is to file very few claims against your insurance policies. Some insurance companies will also offer discounts for things like bundling several policies together for increased coverage, investing in workplace safety training and routine facility maintenance, paying premiums annually instead of monthly, or by adjusting policies to raise their deductibles.
Should I bundle different types of coverage?
Most insurance companies allow businesses to bundle different types of coverage. They may even offer discounts if you bundle several policies at once.
How often should I review my insurance coverage?
You should review your insurance coverage at least once a year.
What affects my insurance premium the most?
The factor with the biggest impact on insurance premiums is the number of previous claims. Other conditions that impact insurance premium costs include the business’s size and type, industry risk factors, location, level of coverage and deductible amounts.
Photo credit: iStock/Ridofranz
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