Business insurance is protection for any potential threats, accidents, or lawsuits that impact your organization. Insurance reduces the potential financial losses you may accrue if a natural disaster destroys your equipment or a customer sues your company for negligence. While you might buy a single business insurance plan, it will cover various aspects of your operations and the threats associated with them. Some forms of business insurance are required and others are optional.
Learn more about the cost of business insurance so you can budget for it within your operating expenses. If you are currently securing financing for your business, know how much you need to borrow so that you are fully insured.
What Is a Business Owners Policy?
A business owner’s policy (BOP) is a bundle of different types of insurance coverage. Instead of shopping for each form of insurance separately, you can invest in a BOP that gives you comprehensive coverage. BOPs make it easier to shop for insurance and you might get discounted rates by purchasing all of your coverage through one provider. However, you have to trust that the insurance company is offering you fair coverage amounts through the BOP.
If you are interested in a BOP, shop around to different insurance providers and carefully read the policies to make sure they fully protect your business.
What Kinds of Insurance Do Businesses Need?
Whether you are shopping for a BOP or want to purchase various types of insurance individually, know your coverage options. Here are a few common insurance policies that businesses need.
General Liability Insurance
This form of insurance protects your company if a customer, employee, or vendor sues it. Your insurance will cover the settlement so your company doesn’t have to pay the costs out of pocket. General liability insurance isn’t required by most states and coverage usually costs around $42 per month for small businesses.
Commercial Property Insurance
This insurance covers your building, equipment, and any supplies you have. Companies need it if they have manufacturing facilities or brick-and-mortar locations. Commercial property insurance might be required by your landlord but is usually not required by law. It costs around $67 per month.
Business Interruption Insurance
Business interruption insurance protects your organization if you cannot operate for a brief period. You might have to close your doors because of natural disasters or protests in your city. This insurance is optional and costs $500 to $3,000 annually, or $42 to $250 per month.
Commercial Vehicle Insurance
If you have company cars, delivery trucks, or fleet vehicles then you will need commercial vehicle insurance. This insurance protects your driver in the event of a crash, along with any other affected parties on the road. Commercial vehicle insurance is required and costs around $150 to $175 per month for each vehicle.
Workers’ Compensation Insurance
Workers’ compensation supports employees who are hurt on the job. For example, if an employee slips on a wet surface and hurts their back, your workers’ compensation insurance will cover their medical bills and lost wages while they heal. Workers compensation requirements vary by state.
The estimated cost of this insurance is determined by $100 of payroll. On average, companies pay $1.19 per $100 of payroll. If you pay $50,000 in payroll each month, then your workers’ compensation costs will be around $595.
Business Income Insurance
Business income insurance is another term for business interruption insurance. These policies are the same.
Other Types of Business Insurance
Depending on the potential risks related to your business, you might want to add these other types of business insurance to your policy.
- Crime insurance: This protects your organization in the event of theft, fraud, or vandalism.
- Cyber liability insurance: This prevents your company from being held liable if cybercriminals access your employees’ or customers’ personal information. It also protects your company if your money is stolen through cyber methods.
- Equipment breakdown insurance: If an important piece of equipment stops working, this insurance coverage can help you replace it.
- Commercial umbrella insurance: This provides extra protection if you think you need it.
You can see how different companies will have different insurance needs. A manufacturing firm would likely invest in equipment breakdown insurance while an e-commerce company will add cyber liability to its policies. Prices for each of these insurance types will vary depending on the size of the company and the coverage provided.
Business Insurance Costs for Small Businesses
You can acquire business insurance for as low as $20 per month if you operate a startup. Some companies pay more than $125 a month even if they are small businesses.
Securing a business insurance estimate can help you with startup funding. You can get the small business loan size you need to fully cover your costs. Reviewing insurance rates can also help you understand your business assets, which can be used as collateral in the future.
How Do Insurers Determine the Cost of Business Insurance?
The cost of your business insurance will depend on potential risk factors related to your organization. Insurers will weigh the risk of insuring your company and how much coverage you need. Here are a few of these factors:
- Business age: Newer companies are often riskier to insure because they don’t have a history of reliability yet.
- Location: Insurers will consider the potential business disruptions that could occur because of natural disasters.
- Industry: Manufacturing companies will have a higher rate of workers’ compensation claims on average than office-based organizations.
- Size: As your business grows, your insurance coverage will also need to increase.
- Prior claims: If you do have a seasoned business, your insurance provider will take any prior claims into account.
The amount of coverage will also determine your insurance costs. If you want more coverage, then you will likely have to pay more.
How To Lower Insurance Costs and Fund Insurance Payments
If you are surprised by the business insurance quotes you are receiving, explore opportunities to lower your costs. Here are a few ways to save money.
- Shop around: Request multiple insurance quotes to make sure you receive fair rates.
- Invest in safe workplaces: Some insurers offer incentives to companies that make safety investments. Taking these steps can also reduce the likelihood that you will have to file a claim, potentially lowering your insurance rates in the future.
- Choose BOPs: Ask about business owner policies that allow you to buy package deals.
- Cut unnecessary coverage: Look for insurance premiums that are unnecessary and cut items that aren’t related to your business.
- Increase your deductible: This is the amount you pay out of pocket before your insurance kicks in. Consider whether you can afford a higher deductible if an emergency occurs.
There are also multiple financing options if you need to fund your insurance payments upfront. You can tap into these financing tools to cover deductibles when necessary.
- Traditional loans: Work with lenders to secure funding for your business insurance and pay back the loan monthly.
- Stock loans: Instead of borrowing against business credit, secure a stock loan, which you take out using your invested shares as collateral. These are secured loans that allow you to retain ownership of your stocks once you pay the money back. Learn more about securities lending.
- Business credit cards: Consider charging your insurance premium on a credit card, which could help you get cash back on your payment.
Few business owners enjoy paying their insurance premiums, but they are happy to have this coverage when they need it. Whether you use your insurance for a workers’ compensation claim or to cover a business interruption, you can protect your finances and stay operational.
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