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How much does small business insurance cost?

Insurance 101

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Professional Liability

By: Hiscox Blog

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As a business owner, you want to be sure you’re spending your money wisely. The first rule of thumb is to find out how much something costs before you commit to buying it. So, you’re wise to wonder, ‘How much does business insurance cost?’

The answer to that question depends on a few factors. Let’s take a look at some of the factors that go in to how much business insurance costs and some examples of what a hypothetical small business might pay for insurance. 

What determines how much business insurance costs?

There are several factors that go into setting the price for business insurance. Here are the top 6.

6 Factors that go into the price of business insurance

  1. Type of coverage. There are two basic kinds of business insurance: general liability and professional liability. General liability covers someone else’s claims of bodily injury or property damage. Professional liability covers errors and omissions you may make when you provide professional advice.   
  2. Limits and deductibles. A limit is the most amount of money an insurance company will pay if you have a claim. The higher the limit, the higher the cost of the policy. A deductible is the amount of money you have to pay before your insurance policy kicks in. The higher the deductible, the lower the cost of the policy because you are paying more of the cost of the claim.
  3. Endorsements. You can get endorsements, or riders, on your policy if your business faces specific risks.
  4. Industry. Some types of businesses are inherently more risky than others, so insurance companies charge a higher premium. For example, a construction business may be more likely to have a claim than a consulting business.  
  5. Size: A larger business with many employees may be more likely to have a claim than a sole proprietor who brings in less revenue. Therefore, a larger business may pay more.   
  6. Location: Insurance rates are regulated by each state’s department of insurance, so rates will vary from state to state. 

How much can I expect to pay for business insurance?

Since there are a lot of variables, the best way to find out how much insurance will cost for your business is to get a quote. But for general information, here are some examples:

A business consultant in Texas has an annual payroll of $200,000. They want a general liability policy with a limit of $1,000,000 for each occurrence (claim) and an aggregate (total) limit of $2,000,000 for the policy period (usually one year), and no deductible. This business can expect to pay $350 a year, or $29.17 per month for their general liability insurance policy. 

An IT consultant in California with annual revenue of $150,000 wants a professional liability policy with a $500,000 limit and a $5,000 deductible. They can expect to pay $441 a year, or $36.75 per month for their professional liability insurance policy. 

How to keep business insurance costs down

There are two ways you can reduce the amount of money you will pay for an insurance policy. You can choose a lower limit, meaning the maximum amount insurance will pay for a single claim or for the policy term less. For example, a policy with a $2,000,000 limit will cost more than one with a $500,000 limit. 

The other way to reduce your premium is to choose a higher deductible. If your deductible is $10,000, meaning you pay the first $10,000 of each claim, you will pay less than if your deductible is $500. 

Consider the size of the largest claim you can imagine someone making against your business, and use that to determine what your limit should be. Then think about how much you can pay out of pocket before insurance covers the rest. This will help you decide on a deductible. A licensed Hiscox agent can help you answer these questions. (Call 866-283-7545, Mon – Fri, 7am – 10pm ET to talk with one.)

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