Updated: Dec 11, 2020
From payroll to marketing, it costs money to run a small business. One necessary expense is small business insurance. As you start preparing your budget, you may be wondering, “How much is small business insurance, anyway?”
The cost of your small business insurance premiums will depend on a variety of factors, including your industry, the size of your operation, and where you operate. For an idea of what you can expect to pay, read on. We explain how insurers set premiums, the average costs of small business insurance, and what you can do to save on your policy.
How do insurers decide premiums?
Like your small business, insurance policies are not one-size-fits-all. Insurers determine premiums based on a number of factors. This allows them to tailor a policy for your business, based on your needs and level of risk.
So, what do insurers consider when setting your premium?
Your type of business — Different businesses have different risk exposures (that’s insurance lingo for the types of accidents and claims associated with a particular industry). A landscaping company is exposed to different types of risk than a personal training business, for example. Also, some businesses are inherently exposed to more risk than others. If you work in an industry with a higher risk profile, such as construction, your premiums will typically be higher.
The size of your staff — With more employees comes more work that is completed, more clients that are services and as a result, greater risk. Your insurer will want to know how many employees you have, as well as how many independent contractors work for you.
Your business location — Many insurance premiums take your area of operation into consideration when determining premiums. Businesses in large cities and urban areas may be exposed to more risk than those in smaller, more rural communities.
Your state — Insurance laws differ by state. States can have different requirements for insurers regarding the sums paid out for damages, what’s covered for certain industries, and more.
The policy limit you select — Speaking of coverage, you’ll also usually have the option to choose your policy limit. Higher policy limits often go hand in hand with higher premiums. However, it’s always a good idea to check. The cost difference between a $1 million and a $2 million policy can be much lower than you think and well worth it if your business is exposed to a lot of risk.
Your claims history — If your business has had several claims brought against you, your premium may be higher than a business that hasn’t had any and has operated for a similar amount of time.
How long you’ve been in business or the amount of experience you have in your field of expertise — A healthy business with growing revenue for several years may be seen as less risky to an insurer, and could have a lower premium than a brand new business or one with inconsistent revenue. Similarly, if you are a new venture, but you have had a lot of experience in the field of operations or in managing a successful business, it may give you a premium advantage.
What does small business insurance cost?
As we’ve mentioned, the cost of your small business insurance will depend on the factors above. It also depends on the number and types of policies you hold.
To help you estimate the cost of insurance for your small business, we break down the average costs for the most common policies below.
General liability insurance
General liability insurance, colloquially known as “slip and fall insurance,” is essential insurance for any small business. This type of insurance helps protect your small business from the costs of liability in third-party claims of property damage, bodily injury, and personal and advertising injury.
The median annual cost for general liability insurance coverage is $500, or $41.67 per month. The cost for your small business will vary based on your industry and the factors above. For example, the median annual cost of insurance for a videography business is $275, while it’s $530 for a cleaning business.
In general, you can expect to pay somewhere between $300 to $600 a year for general liability insurance coverage for your small business, although your particular costs may be higher or lower.
Professional liability insurance
Professional liability insurance helps protect small businesses from claims of negligence that result in a financial loss to a third party. It’s commonly purchased by small businesses who provide professional advice or services to their clients, such as freelancers or consultants.
Pricing for professional liability insurance coverage also varies, depending on the factors we’ve described above, although the median annual cost is around $700*, or $58.33 per month.
Workers’ compensation insurance
While general liability and professional liability insurance coverages protect small businesses from claims brought by third parties, workers’ comp insurance pays out medical costs and lost wage benefits to your employees in case of work-related injury or death. Almost all state laws require businesses to carry workers’ comp insurance if they have any employees besides the owner.
Again, the pricing of workers’ compensation insurance varies based on the factors we’ve described above, but the median annual cost is around $550, or $45.83 per month.
Commercial property insurance
If you rent or own business space, you need commercial property insurance. This type of policy provides coverage for fire, theft, vandalism, or other accidental damage to your building, equipment, furniture, signs, and other physical assets. Most landlords will require you to carry commercial property insurance for your office rental.
The cost of a commercial property insurance policy will depend on the value and number of items you’re looking to protect, as well as the size of your office space. The median annual cost for a small business is between $500 and $1,000**, or between $41.67 and $83.33 per month.
Commercial auto insurance
If you or your employees drive any company vehicles, you’ll want a commercial auto insurance policy to protect them. This insurance provides coverage for accidents, injury, and damage that occurs to other people and cars, along with associated medical bills. If you have a personal auto policy, you can think of a commercial policy as very similar, except that it provides coverage for accidents that occur while operating one of your company cars.
The cost of a commercial auto insurance policy depends on the value and number of vehicles you want covered, as well as typical mileage you drive and where you live. The median annual cost is $1,700, or $141.67 per month.
These are the common policies purchased by most small business owners, but this list is by no means comprehensive. Small businesses operate in a number of industries, and each one has factors that determine its own insurance costs.
How can you save on small business insurance?
You may have been tallying up the costs for each policy as you read the previous section. You may be shocked at the total number, but don’t worry—there are several ways you can save on small business insurance.
One option is to bundle your policies together with the same insurer. Many insurers will offer discounted pricing when you hold more than one policy with them. Those cost savings can be a major benefit here, but another underrated business benefit in procuring insurance is that your business insurance becomes much easier to manage when you only have one or two policies as opposed to many separate ones.
If you have commercial property insurance, a popular option is to purchase a business owners policy (BOP). This bundles your property insurance with general liability insurance coverage and business interruption insurance.
You can also seriously save on insurance by only purchasing coverage for when you need it. Many new and growing small businesses don’t need coverage on an annual basis; they only really need it when they’re on the job. For example, a handyman might have two gigs a week, while an event planner hosts two events a month. With an annual policy, these two would be spending a lot of money on coverage for days they’re not actually working.
Our friends at Thimble offer one-of-a-kind insurance that allows you to purchase coverage by the month or even for just a day or hour. This smarter approach to business insurance can result in huge cost savings for small businesses.
As your business grows, you can always start small and upgrade to a monthly insurance policy. This is still often cheaper than annual policies, the only option offered by old-school insurers, but it’s just as comprehensive, and purposely designed for growing small businesses.
Thimble’s policies start as low as $5, with coverage limits of $1 million or $2 million. Get a quote for your business in less than 60 seconds here.
[*] Insureon. How Much Does Small Business Insurance Cost?, https://www.insureon.com/small-business-insurance/cost. Accessed 1 Sept. 2020 [**] Insureon. How Much Does Small Business Insurance Cost?, https://www.insureon.com/small-business-insurance/cost. Accessed 1 Sept. 2020
Guest Authored by Terri Hitchcock, JD at Thimble
Terri is currently the Chief Insurance Executive at Thimble Insurance, and was previously a Principal and Director of the product design practice area with Perr & Knight, a major insurance consulting services firm. Her areas of expertise are reinsurance and insurance operations, contracts, compliance, product development, and underwriting, having provided such services to clients in the industry over the past 30 years.Terri graduated with a B.A. in English and French from the College of the Holy Cross. She received her JD from the University of Maryland School of Law.