What kind of business insurance do you need? And how much? Sometimes you’ll know you need a certain type of business insurance because the law requires it—workers’ compensation and commercial auto insurance, for example. But there are so many other kinds of business insurance, how does anyone figure out what they need and what they can get away with skipping? And more importantly, how they can calculate the total insurance cost for their small business.
- What you need to know to calculate your small business insurance cost
- Calculating small business insurance cost with different coverages
- What factors affect how much you pay for your small business insurance?
- What types of insurance do I need and how to calculate their costs?
- Calculate how much coverage do you need for your small business insurance
- Why you need small business insurance
What you need to know to calculate your small business insurance cost
The truth is that there isn’t a master formula that you can use to calculate the cost for your small business insurance. The only way you can estimate how much your small business insurance costs is to gather quotes from insurance companies or brokers that you work with.
In order to get quotes from insurance companies or brokers, you need to have the following information:
- The insurance coverages that you need to have for your business
- Your company’s revenue
- Number of employees
- Your company’s operational details, ie. number of stores, customers, product that you manufacture and sell, etc.
- Your company’s claim history
- The policy details such as coverage limits, deductibles, exclusions, endorsements, etc.
Calculating small business insurance cost with different coverages
The most important information you need to calculate your small business insurance is the coverages that you need. There are several coverages or insurance types that small businesses may need. Some are required by law, some are required by customers, and some are not required, but very important to have to protect your business.
Below are a table of different coverages a small business may need and their average costs. You can roughly calculate how much the cost will add up when you know the coverages that you need to have. The coverages are ranked in the order of importance to small businesses across the country.
| Small business insurance coverages | Required? | Average costs |
| Workers comp insurance | Required by law if you have employees | $38 per month per employee |
| Commercial auto insurance | Required by law if you use vehicles for business purposes | $135 per month |
| General liability insurance | Can be required by your customers. Even when it is not required, most small businesses should have it | $46 per month |
| Commercial property insurance | Required by landlord if you rent, or by lenders if you have a mortgage. | $85 per month |
| Business Owners Policy (BOP) insurance | Not required. however, this is the most popular policy for small businesses | $100 per month |
| Professional liability insurance | If your business provides professional advice or services, it is often required by your clients | $60 per month |
| E&O insurance | Similar to professional liability insurance | $145 per month |
These are just the averages for small businesses across the country. Your quotes and rates will be different. Be sure to shop around with a few companies or work with a top broker like CoverWallet, Simply Business, ez.insure, or commercialinsurance.net to get and compare several quotes to find the cheapest one for your business.
Getting an online quote from Thimble is another good way. It should take you less than 5 mins to get a quote for any coverage that you need. A quote from CoverWallet will take a bit longer, 10 minutes, but you can compare several quotes on CoverWallet in one screen.
Learn more at the how much small business insurance costs.
What factors affect how much you pay for your small business insurance?
You probably need to budget for your insurance, but you’re probably wondering how you can do that if you’re not sure how much it will be. There are a number of things that affect how much you pay for insurance:
Number of employees: The more people you have working for you, the more revenue you have and the more insurance will cost. More people equal more exposure to risk.
Industry: Some industries are riskier than others. Roofers have more risk of injury than an accountant does. Higher risk means higher premiums.
Revenue: The more money you make, the more employees you have, and the more you’ll have to pay them. This is especially true for workers’ compensation insurance, but more revenue also means higher costs for general liability insurance because more people equal more opportunities for someone to hurt themselves or someone else.
Payroll: Workers’ Compensation insurance is based on payroll. You can even do pay-as-you-go insurance, which might save you some money.
Location: Cities are more expensive than rural areas because the population is denser and therefore, the chances of accidents are greater. Also, as far as workers’ compensation insurance goes, most states require it. Four are monopolistic (North Dakota, Ohio, Wyoming and Washington) meaning they set all the base rates that insurance companies have to comply with. Thirty-five states are NCCI states, meaning they go by the NCCI’s ratings, and the rest set their own rates. Texas doesn’t require workers’ compensation insurance at all.
Location can also affect how much you pay for commercial property insurance. Some areas are prone to flooding, hurricanes, earthquakes or winter storms, and rates will vary accordingly.
Value of equipment: If you have a lot of expensive equipment, you’ll pay more to insure it because the insurance company will pay more if something happens to it.
Coverage amount: More insurance equals higher costs.
Claims history: If you’ve filed a claim in the last five years, you’ll pay more for insurance than someone who has never filed a claim. Yes, you learned your lesson and made your workplace safer, but you’ll still pay more in premiums for a while.
Years of experience in the industry: New business owners are an unknown quantity, and since they don’t have a lot of experience, they may be prone to making mistakes. Business owners with years of experience and no claims history are a much safer bet for insurance companies.
What types of insurance do I need and how to calculate their costs?
Some types of insurance are more costly than others. What kind of policy(s) do you need, and how much will you pay?
General liability:
General liability insurance covers you for third-party bodily injury and property damage. It also covers you for reputational harm and advertising injury. Small business owners pay an average of $500 a year for this coverage. Those in construction pay more, and photographers and videographers pay the least.
Learn more at how much general liability insurance costs and the best general liability insurance companies.
Business Owners Policy (BOP)
BOP insurance combines general liability insurance with commercial property insurance in a single policy. Some policies even throw in business interruption insurance as well. The average cost of a business owner’s policy is $636 a year.
Learn more at BOP insurance cost and the best BOP insurance companies
Workers Compensation:
How much you pay for workers comp insurance depends on your rate of experience, payroll, and how your employees are classified. The formula is:
Class code X Payroll/$100) x Experience modification rate = premium
Learn more how to calculate workers comp insurance cost and the best workers comp insurance companies
Errors and Omissions (E&O):
This is also known as malpractice insurance. It protects you in case you forget to do something, and a client suffers for it (an omission), or you make a mistake (error). The Hartford says the average rate is between $500 and $1,000 per employee, per year.
Learn more at E&O insurance cost and the best E&O insurance companies
Directors and Officers (D&O)
D&O insurance is similar to E&O insurance, but for companies. It protects the officers of a company from personal losses if the company is sued, or if they are sued as a result of being an officer. Lower risk companies could pay as little as $250 a year for $1 million in coverage.
Learn more at D&O insurance cost and the best D&O insurance companies
Commercial Umbrella:
Commercial umbrella insurance kicks in when the limits of other liability policies are exhausted. Rates are based on how much coverage you purchase, and how many other policies you have (because it’s more likely to have to cover one of them). You may pay $450 for $1 million dollar umbrella policy.
Learn more at the best commercial umbrella insurance companies
Commercial Auto:
If you drive a car for business purposes (other than commuting back and forth) you need commercial auto insurance because your personal policy will not cover you. Costs vary between $600 and $2400 per car. Semi-trucks pay the most—between $8,000 and $12,000 per truck.
Learn more at commercial auto insurance cost and commercial truck insurance cost and the best commercial auto insurance companies and the best commercial truck insurance companies
Inland Marine:
Commercial property insurance only covers your property while it’s onsite. In other words, every time you haul your equipment somewhere else, it’s not covered—unless you have inland marine insurance. Costs depends on what you’re insuring, but you could pay $250 for a $10,000 policy.
Learn more at the best inland marine insurance companies
Employment practices liability insurance (EPLI)
Covers your legal expenses if an employee sues you for discrimination or wrongful termination. These types of lawsuits are one of the most often filed against small businesses.
Learn more at the best EPLI companies
Calculate how much coverage do you need for your small business insurance
This is an important question. General liability insurance is a good, basic policy. Many small businesses get a policy with $1 million per occurrence and a $2 million aggregate limit. If you own a space, commercial property insurance is essential, or you could combine it with general liability insurance for a business owner’s policy.
Since you can’t spend all of your money on insurance, think carefully about what insurance your business needs. Talk to other business owners in your industry. You could ask people on social media if you don’t know of anyone who works in a similar business.
And others. And our advice is, if you can only afford one type of policy, get general liability insurance.
Get an online quote from CoverWallet or Thimble for the coverages that you need to calculate how much your small business insurance would cost. You can get a quote on Thimble website in less than 5 mins. A quote from CoverWallet will take a bit longer, 10 minutes, but you can compare several quotes on CoverWallet in one screen.
Why you need small business insurance
Small business owners have lots of expenses, and since insurance is one of those things you can’t see the benefits of until you need it, they might be tempted to skip insurance altogether. But don’t do that. Insurance will protect your business should something go wrong. At the very least, you’ll need general liability insurance. If you are sued by someone, for either an injury or for property damage, general liability insurance will protect you. If you don’t have insurance, you will have to pay for those costs of out of pocket, which can easily bankrupt a small business.
Some insurance policies may even help you gain business. Contractors especially are usually required to have general liability insurance at the very least before many clients will hire them. Other industries that may need proof of insurance include:
- Roofers – Learn more at the best roofing insurance companies
- Handyman – Learn more at the best handyman insurance companies
- Tree work
- Plumbers – Learn more at the best plumbing insurance companies
- Construction – Learn more at the best construction insurance companies
- Home inspectors – Learn more at the best E&O insurance companies for home inspectors
Even if your business is a less risky proposition, it’s always a good idea to have insurance.
Many small business owners are under the impression that accidents don’t happen that often, but they would be wrong. According to The Hartford, 40% of small businesses will incur a loss within ten years.
Last thoughts
Buying business insurance can seem overwhelming, but it doesn’t have to be. Take some time to talk to other business owners, do some research and get some quotes.
