Commercial Insurance: Cost Breakdown
The need for commercial insurance keeps growing annually. The number of businesses getting business insurance is exponentially increasing each year, with data showing that the commercial insurance market is expected to hit a value of $1.6 trillion by 2030.
Compared to its $692.33 billion valuation in 2020, the commercial insurance market will experience a growth at a CAGR of 9.7% into 2030.
Despite many businesses securing their assets and employees through robust insurance policies, not many pick up a policy knowing how much they should be spending and why they should be spending it.
On average, a liability-only business insurance policy will cost $500 annually. A business owner's policy will cost you $636 on average.
Here's a deeper look into how much business insurance costs, factors that affect pricing, and how you can lower your business insurance costs.
How Much Does Business Insurance Generally Cost?
Every business is different, facing unique risks and challenges. These range from property damage to bodily injury to mistakes in professional services. Commercial insurance protects your organization from these risks, ensuring claims don't affect your organization financially.
Therefore, no one-size-fits-all answer exists for how much business insurance should cost. However, you can make clever estimations before meeting with your insurance provider.
Typically, you should expect to pay about $55 monthly for business insurance, totaling about $500 to $662 annually. Your exact costs will vary based on a few factors highlighted below.
Factors That Affect the Cost of Commercial Insurance
The following key factors will dictate how much you should pay for business insurance:
Some professions carry more risks than others. Higher risks equal higher premiums from insurance companies.
For instance, the cost of professional liability insurance for an architecture firm working on public buildings will be higher than for an insurance agent serving individual clients.
Worker's compensation also gets very specific, detailing each employee's job description and function to determine the business's risks and cost of coverage.
Your business's location will influence the insurance premiums it pays. This mostly affects worker's compensation insurance, whose terms are dictated by state laws. These terms include the policy's coverage level and how much the policyholder should pay.
Commercial auto insurance costs are also affected by location. Businesses operating in cities and areas with a higher-than-average claim rate will often pay a higher premium.
Payroll and Sales
The size of your annual payroll also affects how much you pay for business insurance. Data shows that, depending on the state, worker's compensation insurance costs will vary from 52 cents to $1.98 per month per $100 payroll.
Insurers will also use your business's revenue to determine how much you should pay for general liability insurance. The logic behind this cost structure is that the more customers you have, the likelier one will be aggrieved or injured in a way.
Workforce and Business Size
The premium paid for business insurance directly correlates with the number of employees you have. That's because more employees translate to more opportunities for incidents, injuries, and accidents.
Therefore, larger businesses will pay more for worker's compensation insurance than smaller businesses. Companies with no employees may save cash on worker's compensation insurance since they may not be mandated to purchase it.
Coverage and Deductibles
How much your business insurance policy should pay out will dictate the cost of the premiums. For instance, commercial auto insurance with comprehensive coverage will cost more than a policy with the minimum liability coverage required by state law.
Likewise, a general liability policy with a $2 million aggregate limit will cost more than a policy with a $1 million aggregate limit.
Policies with lower deductibles will also cost more than ones with higher ones.
If your business has a long history of claims, most insurance companies will take it as a sign that it's inherently risky or not taking proper steps to mitigate its risks. Therefore, they will charge you higher premiums for insurance.
The Different Types of Business Insurance and Their Average Costs
There are four main types of business insurance, each offering different coverage for your business. They include the following:
Commercial General Liability Insurance
This type of commercial insurance costs an average annual premium of $500. It protects your business against the costs of lawsuits filed by third parties for claims of personal property damage or bodily injury caused by your company.
Worker's Compensation Insurance
This insurance policy costs an average annual premium of $560. It protects your business's workers from illness, injury, or death caused by the job or business activities. It's a mandatory cover for companies with at least one employee.
Commercial Auto Insurance
This insurance policy costs an average annual premium of $1,704. It protects company vehicles from disasters, collisions, lawsuits, and more.
Business Owner's Policy
This policy costs an average annual premium of $636. It's an insurance package best suited for small businesses, combining different covers such as commercial property, commercial general liability, and business income.
How You Can Lower the Cost of Your Commercial Insurance
If left unchecked, the cost of commercial insurance can become too great for your business to afford. Here're a few tips that can help keep the costs down.
Avoid Small Claims
Try repairing little damages yourself. A long claim history will raise your premiums to a point where the premiums supersede the claims' costs.
Only file a claim if the damage is significant and can significantly dent your business's finances.
Pay a Higher Deductible
Increasing your deductible lowers the likelihood of making claims, reducing your commercial insurance premiums. Some insurers offer discounts on premiums paid by policyholders with high deductibles.
Install Security and Safety Systems
Businesses with security cameras and sprinkler systems are viewed as lower risk, reducing their commercial insurance premiums. These systems show that you can mitigate risks, translating to fewer claims.
Take your time shopping around and get quotes from as many providers as possible. Use the information from each provider to determine the best value option.
Bundle Multiple Policies Together
Most insurance providers will offer generous discounts on your annual premiums if you bundle multiple policies from them.
Let a Professional Advise You on How Much You Should Spend
The best business insurance is not necessarily the cheapest. What you require and how much you'll spend will vary based on your needs. Get in touch with us today and let us suggest for you a great commercial insurance policy.