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PROTECT YOUR BUSINESS

Business Insurance Cost: The 8 Surprising Factors that Go into Your Policy

7-minute read

Man sitting at computer with calculator.
Allison Grinberg-Funes

Allison Grinberg-Funes

30 March 2021

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A lot goes into starting your business. From setting up your website to getting customers through the door, there are a lot of logistics to consider.

One of the biggest factors when preparing for success is business insurance. Like most business owners, you may want to know what goes into the cost of protecting your business from risks.

In this article, we'll cover many of the factors that go into the cost of your business insurance, so you're able to make an informed decision about what coverage is right for you.

8 Factors That Affect Your Business Insurance Cost

1. What you do.

Your business insurance cost will vary, depending on the type of work you do and the coverage you'll need to protect your business from certain risks.

Most insurance companies will ask you to specify your trade and the specific activities that you do in your work so they can calculate that factor into your cost.

Each business owner will face different challenges and risks, depending on the type of work they do. For example, a tree removal specialist faces different risks than an accounting consultant.

There are different types of coverage that can protect your business based on what you do. If your business is at risk for property damage, third-party accidents, or bodily injury, then you'll want to consider general liability insurance.

For example, the average customer slip-and-fall claim is $20,000. That's a lot of money, especially if your business is new and growing. Not having insurance means that you may be responsible to pay the requested fees of the claim, as well as any legal counsel, all out-of pocket.

However, if you're in the business of advising clients, like a marketing consultant, then you're at risk of claims for negligence, and you'll want to consider professional liability insurance.

The average reputational damage claim is $50,000. Similar to the slip-and-fall claim, which may be no fault of your own, these costs could dig you into a hole too deep to dig out of before ever succeeding in your business.

Of course, different professions will face different risks, each coming with their own, likely large, average claim price tag.

For example, a pressure washer who washes residential buildings may have a different premium than a pressure washer who washes both residential and commercial buildings.

2. Where you do business.

In addition to your specific trade, the location of your business and where you do business will factor into your overall business insurance cost.

That’s because some areas of the country assess risk for specific trades differently. For example, while one state may have specific business insurance requirements, such as getting your business license, a local government for the city you work in may indicate more risk based on environmental factors, the crime rate, etc.

What's for sure, though, is that no matter where you work, if you’re working in a physical location, such as a storefront or restaurant, it will be taken into consideration when calculating the cost of your business insurance.

Business owners who have one or more locations are more at risk of third-party accidents, bodily injury, and property damage than someone who works out of their own home, so insurance carriers will use that information to assess your cost.

If you travel out of state to do your business, insurance companies will most likely take that into account when determining the cost of your business insurance.

3. What equipment you use.

Depending on your profession, you may need specific tools or equipment to do your job.

Maybe this includes expensive hair care tools, a pressure washer, or specific tree-cutting tools. Whatever you use, it's likely that you invested money in those tools.

Now think — would you be able to do your job as well — or at all — without those tools or equipment? They are likely essential to perform your job. If something were to be damaged or stolen, you'd be up the river without a paddle.

Having business insurance can help cover the cost of replacing or repairing your equipment if it’s unusable.

When calculating the risk of losing tools or equipment being damaged or stolen, insurance carriers providing tools and equipment coverage will consider the cost to replace or repair them, which will factor into the cost of your business insurance.

4. The amount of business you're doing.

You may be asking yourself, "Why would how much business I do impact my business insurance cost?"

And the answer is: the amount of risk you’re exposed to can change, depending on how much business you're doing.

This cost consideration comes into play depending on your payroll and the nature of your customers.

Payroll

The majority of states require workers compensation insurance to protect employees who get sick or injured on the job. If either occurs, workers compensation insurance can help cover medical bills, loss of wages, and more.

The more employees you have, the higher your payroll, and the more workers compensation insurance coverage you'll need.

This is because many insurance carriers assume that the more employees you have, the higher the chance of accidents. More employees means more room for human error!

If you're the only one operating in your business, this won't be as highly considered, but if you have employees, it will likely figure into the insurance cost calculation.

Even if you are looking for a different type of business insurance, carriers will likely ask how many people work with you when buying general liability or professional liability insurance in order to assess similar risks.

Customers

As we mentioned previously, the nature of your customers influences your business insurance costs. But this isn't just about the money you get from customers — it's from the assumed risk of working with them.

Whether you're considering general liability insurance or professional liability insurance, your business insurance cost could include the potential of risks of bodily injury, third-party accidents, property damage, negligence, and more.

5. What deductible you choose.

When you're requesting insurance quotes, they'll be based on how much coverage you need, which will be tied to a deductible.

For example, for $1,000,000 coverage, you may have a $2,500 deductible. Here's how that works.

Say your storefront is broken into and some items are stolen from your inventory. The cost of the repairs to the storefront and the replacement of the items is $5,000. You're responsible to pay $2,500, and your business insurance can help cover the rest.

Since you've reached your deductible and your business suffers another loss in the same year, then your insurance can help cover those costs, up to your policy limit.

Typically, the higher deductible you choose, the lower the price of your monthly or annual premiums. If you choose a lower deductible, then your business insurance cost may be more upfront, with higher monthly or annual premiums.

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6. If claims were previously made against your business.

When assessing risk and determining your business insurance cost and estimated premium, many carriers will ask if you've ever had a claim filed against you.

And there's a good reason for that question.

Let's think about how car insurance works. If you have an accident, your premium is likely to increase, since insurance carriers assume that the possibility that you’ll have another accident is likely.

The same goes for business insurance cost.

Say you're a general contractor and you’re building a deck for a client. The homeowner steps on a nail you'd inadvertently dropped in the grass, which requires their having to go to the emergency room. The client sues you to cover the cost of their medical bills.

When an insurance carrier factors previous claims into your premium, they may charge you a higher premium than if you hadn't had a claim against you previously. Unfortunately, having had one or more claims filed against you, the insurance carrier could assume there may be future claims filed against you.

Keep in mind: Your history of past claims is a factor in business insurance cost, so if you’ve ever had a claim made against your business, be upfront about it with the insurance carrier.

If you’re not forthright regarding past claims, it could result in your policy being cancelled. So while you may be tempted to change your answers in the hope of lowering your premium — don't do it. You could jeopardize your business's protection in the future.

7. Your credit score.

You may be used to having your credit score being checked before buying something like auto insurance, and the same applies to buying business insurance coverage.

Insurance carriers will likely want to know your credit score and use the information when considering what the cost of the monthly premiums will be. Oftentimes, if you have a bad credit score, you could be charged a higher premium.

Business owners with higher credit scores may have the privilege of getting lower premium rates.

8. How you prefer to pay your premium, monthly vs. annually.

When you're shopping for business insurance, it's likely that you'll have the option of paying either an annual premium or monthly premiums.

The difference in how much you pay for a monthly premium versus an annual premium can vary. The cost of your premium and whether or not you'd save money by choosing to pay annually, for example, depends on the insurance carrier you're working with.

When you're comparing quotes, it's a good idea to do the math and calculate whether or not it will save you money to pay at once or on a monthly basis.

Factor in Business Insurance for Success

Phew — that’s a lot of information to take in. It can be frustrating to hear that there’s no single answer for how much your business insurance may cost.

But consider this: each business is unique in what it offers its customers and community, so the insurance coverage that protects the business must be unique, too.

Knowing things like your profession, your location, how many employees you have, the type of equipment you use, your credit score, and how you'd prefer to pay your deductible and premiums, are all factors that go into your business insurance cost.

Paying that cost, either with a monthly or annual premium, could be the lifeline your business needs in a devastating situation, so don't hesitate to start comparing quotes. See what coverage is available for your small business by using our free quote comparison tool here.

Allison Grinberg-Funes

Written by

Allison Grinberg-Funes

I’ve told stories since I learned to talk and written since I could hold a pen. As a small business owner myself - I'm a freelance writer and yoga teacher - I love contributing to the entrepreneurship community in different ways (including writing for Simply Business!). When I’m not drafting articles for SB, I can be found on my yoga mat, perusing an indie bookstore, and writing (with my cat nearby of course).

This content is for general, informational purposes only and is not intended to provide legal, tax, accounting, or financial advice. Please obtain expert advice from industry specific professionals who may better understand your business’s needs. Read our full disclaimer

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