No business should be without insurance.
But what does business insurance cost? Here are 7 things that determine your premium amounts.
There are few ventures more exciting than starting a new business. Picking a business name, designing a logo, looking for real estate…you’re turning all these dreams into reality.
While insurance may not have the same appeal as developing a menu or decorating an office, it has arguably the biggest impact on your business’ success. That is why the Harry Levine Insurance agency places such a strong emphasis on educating our clients on the policies available to them.
In this article, we’ll be tackling one of the most pressing concerns for business owners: How much does business insurance cost?
The problem is, your insurance premiums depend a lot on your unique business. But since it doesn’t help to say, “It all depends; contact your agent,” we’ll give you some insight into seven different factors that have an affect on the cost of business insurance.
Let’s go over some of these factors one by one.
#1. Your Industry
Perhaps the #1 factor determining your business insurance premiums is the type of business you own.
Each industry has its own inherent level of risk; and risk is the biggest driver when it comes to calculating your insurance costs. For example, a construction company is open to a lot more risk than a bookkeeping office, so don’t be surprised if your independent insurance agent starts asking detailed questions about the line of work you’re in.
Another thing your insurance company wants to know? Details about your unique company.
Are you opening a restaurant where customers can grill their own shish kabobs right at the table? Does your business model require employees to enter customers’ homes or work directly with their children? Are you taking money in exchange for legal or financial advice?
These are things that increase your risk and therefore, your insurance premiums.
#2. Your Level of Expertise
Another factor that affects the cost of your business insurance is your level of expertise.
Educated business owners who have had years to hone and perfect their skills are presumed to have lower risk than those who are just starting out. And, as we’ve mentioned before, lower risk means lower premiums.
So don’t be surprised if your insurance agent asks for details about how long you’ve been in business, what type of education you have, and whether your employees hold any qualifications. This is all useful information in helping them come up with an insurance quote.
#3. Your Annual Revenue
If you’re like most business owners, you’re doing everything in your power to increase your revenue each year, but don’t forget that a growing business will cause your insurance costs to grow, too.
The way the insurance company sees it, higher revenue leads to more employees, more square footage, and more employees, all of which increase your risk. If you are sued (hey, it can happen to anyone), your insurance carrier wants to know how much you (and, by extension, they) would be held liable for.
#4. Your Business Location
Even if you run an e-commerce business, where you work has a lot to do with your insurance premiums.
The larger your real estate, the more square footage left open to risk. Will your location receive lots of foot traffic? That’s more opportunity for general liability claims.
Your location’s physical condition also has a lot to do with your insurance costs. Newer construction often gets you lower insurance premiums than older construction, which might not be up to the most recent codes.
Lastly, they’ll want to know the physical location of your business. Areas that are more prone to high crime, flooding, or other risks will cost you more in insurance premiums.
The city and state your business is in also has an effect your insurance costs. Some states are more lenient towards the plaintiff in lawsuit cases, meaning that businesses who are sued will end up paying more than they would in another state.
If you have a choice as to what state to do business in, it’s worth taking a look at the “insurance-friendliness” of each state before making a decision.
#5. Your Employees
That’s right, the number of employees you have affects more than health insurance.
In general, the more employees you have, the more you’ll pay in insurance costs. Insurance rates can also fluctuate depending on the positions those employees hold and where they work from (in the office or out of their homes).
#6. The Policy You Want
Asking “how much does business insurance cost?” is a bit like asking “how much does a car cost?” It depends on the features you’re looking for.
The more policies you add, the higher your premiums are going to rise. (Just like those heated seats are going to cost you a little extra than the standard model). Sometimes, the nature of your business will determine the types of insurance policies you need to buy, but other times, it will be up to you.
In most cases, you can start with a basic BOP, or Business Owner’s Policy, which includes General Liability Insurance, Commercial Property Insurance, and Business Interruption coverage. From there, you can tack on additional policies depending on your unique needs.
Some popular policies include:
- E&O Insurance
- Cyber Risk Insurance
- Inland Marine Insurance (for any portable property your business owns)
- Liquor Liability Insurance
- Food Spoilage & Contamination Insurance
- Commercial Auto Insurance
- Employment Practices Liability Insurance
- Workers’ Compensation Insurance
- Disability Insurance
- Health Insurance
Your premiums will also depend on the limits and deductibles you choose. If you want high limits and low deductibles, those plans are going to cost you more per month than one where you assume more of the risk.
#7. Claims History
If your business has a history of making claims for loss or damage, the insurance company will charge you higher premiums to cover the risk of insuring you.
This is the case with any insurance policy. In their eyes, more claims in the past probably indicates more claims in the future. This is why your claims history is one of the biggest factors in determining your insurance score.
To your insurance company, it doesn’t matter whether your claims were fraudulent or completely legitimate. The more they have to pay out, the more they’ll need to take in. That’s the way the insurance market works.
You can combat rising insurance costs by mitigating your business’s own level of risk and protecting yourself with a network of insurance policies.
Insurance might not be as fun as other parts of planning a business, but it’s too important to your business to settle for the cheapest policy and hope for the best.
Rather, select your coverage based on your level of risk. When you need to file a claim, you’ll be glad you didn’t settle for a cheap policy.
Because no two businesses are like, there’s no way to tell you how much your business insurance will cost. For the most accurate quote, your best bet is to contact an independent insurance agent.
Unlike captive agents who are locked in to a single insurance company, an independent agent can gather quotes from multiple carriers to find the best value and coverage level for your business. Furthermore, they’re not just here to sell you a policy and leave you out in the cold. Independent agents are members of the community; they want your business to succeed as much as you do!
Harry Levine Insurance has been one of Orlando’s premiere insurance agents for the last 40 years and have built a reputation of honesty, integrity, and unparalleled customer service.
Whether you’re just starting a business or simply shopping for an insurance quote, give us a call to see how we can help build the coverage you need.
This post was updated in April 2020.