How much does business insurance cost?

While coverage needs vary from business to business, one thing is certain: Every business needs insurance. That said, with so many different insurance coverage options out there, it can be difficult to determine what insurance policies your business needs. And more importantly, how much will they cost?

In this article, we will break down the average cost for business insurance, explain the different factors that can make insurance more costly, and provide you with some tips on reducing your insurance premiums.

Types of business insurance policies and how much they cost

The question of what insurance coverage your business needs is complex. For example, a fully remote business model likely won’t need to invest in property insurance, and a business without company-owned vehicles won’t need commercial auto insurance. All insurance policies come with different costs, so unfortunately, there isn’t a one-size-fits-all answer. Instead, let’s take a look into the average costs of some different common business insurance coverage options.

General Liability insurance

Average annual cost: $500 to $1,200

General liability insurance is one of the staple insurance policies that essentially every business should have in place. It protects your company from claims related to third-party bodily injuries and damages and other general liabilities. Since it’s a very general policy that every business should own, it makes sense that it’s also one of the cheaper policies to buy.

One of the main factors that can increase the cost of general liability premiums is your business’s industry and risk exposure. For example, a construction or manufacturing business comes with many more risks than a digital marketing agency. So, general liability insurance costs for these industries will generally be higher.

Professional Liability insurance (errors and omissions)

Average annual cost: $4,000 to $15,000

Professional liability insurance policies are important for service-centered businesses such as accountants, lawyers, consultants, engineers, and IT professionals. This policy protects businesses from lawsuits for mistakes and professional errors that result in lawsuits. 

For example, professional liability insurance can cover any legal fees or fines an accountant receives after making an error on a client’s tax return that results in IRS penalties.

The cost of professional liability insurance varies depending on several different factors. The medical, architectural, and engineering industries tend to have extremely high-risk factors and will generally need to pay more for professional liability insurance. If an accountant makes a mistake, their client may face tax penalties, but if an architect makes a mistake, a bridge could collapse.

Workers Compensation insurance

Average annual cost: $1,000 to $2,500

Workers compensation insurance is one of the first coverages that businesses take out and is required by most states for companies with employees. This policy covers legal fees, medical bills, and lost wages in cases of employee injury/illness in the workplace.

Some factors that will impact the cost of workers compensation insurance are the policy limits, the business’ industry, and the number of employees a business has.

That said, the most important factor for calculating the cost of workers compensation insurance is the “experience modification rate” (EMR). An EMR is a mathematical formula that is used to compare your company’s workers compensation history with other companies in your industry. EMRs range from .75 to 1.25, with rates above 1 increasing insurance costs.

Additionally, the state your business operates in will also have a significant impact on the cost of workers compensation insurance, as each state has different mandatory limits and requirements for businesses.

Commercial Property insurance

Average annual cost: $800 to $5,000

If your business owns or rents a physical space, you’ll need to invest in commercial property insurance. This policy protects your company against potential vandalism, theft, fires, and other forms of property damage.

The average cost of property insurance can vary dramatically depending on your business’ location, industry, the type of equipment you operate, the age and physical state of the building, and the scale of your coverage.

Restaurant businesses are the most likely to experience fire damage, so they tend to have a higher commercial property insurance cost. On the other hand, an industry with a low property damage risk, such as accounting, may still pay higher premiums if located in a region with a high risk of natural disasters, such as California or Florida.

Commercial Crime insurance

Average annual cost: $1,500 to $35,000

Commercial crime insurance covers businesses from financial losses as a result of theft, forgery, fraud, embezzlement, and other criminal acts. You can invest in both first-party and third-party crime insurance policies. First-party coverage protects against losses your own business faces due to criminal activity, and third-party crime insurance covers the losses another person or business faces due to crimes your business committed.

As you can see, there is a wide range when it comes to the cost of commercial crime insurance. The reason for this is that the cost can rise significantly depending on the potential risk factors in your business and the value of your company’s assets and equipment. Insurers may also check your security protocols and reduce your insurance premium if you have solid security measures and procedures in place to prevent crime from occurring.

Commercial Auto insurance

Average annual cost: $1,500 to $7,000

You need commercial auto insurance if your business owns, leases, or operates vehicles. This coverage protects your business in the case of any accidents that involve your company-operated vehicles. Commercial auto insurance can cover any financial burdens that occur as a result of a vehicle accident, such as bodily injury, property damage, collision repair, and medical payments.

Some factors that may affect your company’s commercial auto insurance premium include the number of drivers you need to insure, each driver’s driving record, the type and cost of the vehicles you need to cover, and how you plan to use the vehicles.

Cyber Liability insurance

Average annual cost: $1,500 to $4,800

Most businesses have digitized in recent years, so cyber liability insurance has become increasingly important. Cybersecurity threats are more damaging now than ever and can have major financial and operational consequences on businesses. Cyber liability insurance protects your business from financial losses, data recovery, business interruption, and other resulting issues from a cyberattack.

The cost of cyber insurance for your business depends heavily on the amount of sensitive data your company holds, your annual revenue, and your industry. Insurers also tend to reward companies that invest in stronger cybersecurity systems and protocols with lower cyber insurance premiums.

Directors and Officers insurance

Average annual cost: $9,000 to $30,000

Directors and officers (D&O) insurance specifically covers high-level executives and board members of a company from lawsuits and financial obligations. This essentially transfers the risk from the company and the executive to the insurance provider.

D&O coverage essentially safeguards executives in a company so that they can do their job without worrying about personal liability.

As with all of the policies we have mentioned, directors and officers insurance can vary drastically in cost. Since newer startups tend to come with more risk and liability, the amount of time the company has been active may have an effect on D&O premiums. As a general rule, you can expect to pay around $5,000 per month for every $1 million in D&O coverage, though, of course, this can also vary.

Business Owners Policy (BOP)

Average annual cost: $500 to $3,000

A business owners policy (BOP) is a collection of insurance policies that are absolutely essential for most businesses. The exact types of coverage included in BOPs will vary, but Embroker’s product includes commercial general liability insurance, commercial property insurance, and business interruption insurance.

Instead of individually signing up for these three policies, new business owners can sign up for a single package that includes all three. These policies are generally more cost-effective than individual policies. In fact, business owners tend to save at least 10% by opting for a BOP. This makes a BOP one of the most popular ways for new companies to get insured. 

Obviously, the exact coverage offered by a BOP will dictate the cost, and policies with some companies will cost far more than others.

For a more accurate quote on various business insurance costs, head over to our complete coverage page.

What factors influence business insurance costs?

As you can tell by now, there is no straight answer for how much business insurance costs. There are many different variables that affect the prices of insurance premiums. So, costs all depend on your industry, policy limit, revenue, size and location of your business, and claims history. Let’s take a closer look at some of these factors.

Policy limits

A higher policy limit provides more extensive coverage, and typically results in higher premiums because the insurer takes on more risk. On the other hand, if you want to reduce your monthly insurance costs, you can opt for a lower policy limit. 

Keep in mind that insurers will not cover claims after the limit has been reached. So, in the case of significant claims, a lower limit can expose you to more financial risk, and your business may have to pay larger sums out-of-pocket.

Claims history

One of the key factors that insurance actuaries consider when determining your business’ premiums is your claims history. Obviously, the more claims filed against your company, the riskier you are to insure, which often results in higher premiums.

Business industry

Even if you have a clean claims record, your insurance may cost more due to your business’ industry. 

For example, if you run a restaurant, you’re going to have to pay significantly more for commercial property and workers compensation insurance than a software development company. Why? Because the risks that your property and employees (fires, personal injury, etc.) are exposed to in the hospitality industry are significantly greater than the risks a technology company faces.

On the other hand, tech startups are going to pay significantly more for Tech E & O / Cyber insurance than a restaurant would, because these companies are much more at risk of cyberattacks and other tech-related issues.

Insurers also have general liability class codes that they use to group businesses according to risk level and calculate premiums.

Annual revenue

The more money a business earns, the higher the risks are. So, insurance companies generally charge higher premiums to large-scale operations and high-revenue businesses. Simply put, a business that only earns $100,000 per year is far less risky to insure than one that earns more than $10 million. Businesses with high annual revenue also tend to have more complex business processes that can increase the risk of financial losses or liability claims.

Number of employees

As mentioned above, your workers compensation insurance cost goes up with each additional employee, but this isn’t the only type of insurance that will be affected by employee count. Many other policies will consider the number of employees a business has when calculating premiums. For example, employment practices liability insurance will also cost more depending on the number of employees you have, as your company will be more at risk of an employment-related claim.

Business location

The location of your business is another very important factor. If your business is located in an area that is prone to earthquakes, wildfires, and flooding, for example, you’ll be paying much more for most policy types than a business in a low-risk area. For the most part, companies situated in larger cities also pay more for insurance than companies with suburban or rural locations. Additionally, the state your business is located in may have specific insurance requirements, such as workers compensation, which can differ from state-to-state.

Reduce costs with a bundled insurance plan for your business

Let’s face it, there are many different types of insurable risks that businesses face, and investing in each individual policy can be expensive. That said, narrowing down which coverage to prioritize for your business can also be a challenge. This is where Embroker’s custom insurance plans come in.

We have created industry-specific insurance packages that contain the most important coverage for different types of businesses. These packages not only save you time on having to cherry-pick the right coverage, but they also tend to cost less than a la carte policies.

Here are some of our most popular industry-specific packages:

• Consultants
• Startups
• Non VC Funded Tech Startups
• Real Estate Agents
• Law Firms
• Venture Capital Firms
• Financial Services

Other ways to reduce business insurance costs

Looking for some other ways to reduce your business insurance costs? Here are some of our top recommended ways to save money on your premiums.

Pay annually

When purchasing insurance for your business, you tend to have two payment options: paying annually or paying monthly. If your company can afford the larger upfront payment, you’ll almost always save money in the long run by paying annually.

Manage your business risks

As mentioned, the riskier that insurers view your business, the more you are going to pay for insurance. One of the best ways to reduce your insurance costs is to manage your business risks effectively, as you’ll minimize the need to make insurance claims.

You can do this by implementing clear safety protocols, training and educating employees on risks and safety, and frequently improving and modernizing your security systems.

Raise your deductible

Your deductible is the amount of money you’ll have to pay on claims before your insurance will kick in. For example, if you have a $5,000 deductible, your business is required to cover the first $5,000 in claims before your insurance will cover anything.

The lower the deductible, the higher the premium, and vice versa. So you can reduce your insurance premiums by raising your deductible

Go with an insurance broker

If you’re looking to get the best and most complete coverage possible for the lowest possible price, your best bet is to team up with an experienced broker who has specific interests and experience insuring companies in your industry. They’ll discuss your insurance options with you and put together an insurance program that gives you the best possible balance of protection and value.

To learn more about the best coverage for your business, check out Embroker’s digital insurance platform.