Businesses are the crucial element for the success of any country. However, they operate under a set of dynamic and unpredictable market environments that exposes them to several threats.
Small businesses must pay heed to sound financial and insurance advice and purchase insurance relevant to them.
Business insurance is the key to safeguarding the business from the uncertainties of the future.
It provides safe protection to business owners against the losses that may occur in the normal functioning of the business.
However, when considering insurance, one question that pops up most is ‘how much is business insurance?’
How much is Business Insurance?
Business insurances are of various types for catering to a varied category of business needs.
Hence, business insurance costs also differ depending upon the type of business and policy. Generally, an insurance company assesses the risk faced by a particular business to arrive at its cost to answer the question, ‘how much is business insurance?’
The various types of business insurance are:
- General Liability Insurance
- Commercial Property Insurance
- Inland Marine Insurance
- Business Income Insurance
- Workers Compensation Insurance
- Professional Liability Insurance
- Cyber Liability Insurance
Each type of business insurance serves different purposes. Their cost determinants are different which helps in deciding how much is business insurance.
1. General Liability Insurance
General liability insurance helps to insure the business against lawsuits or claims about:
- Third-party bodily injury
- Property damage to you or someone else
- Personal damage to someone’s public image.
The small business owner would find general liability insurance very useful as it has a broad outlook and covers most of the damages in the general course of business.
The average monthly general liability insurance cost is around $30. The annual insurance rates for the same would be around $360 for most business owners.
Factors Affecting General Liability Insurance Costs
The factors that influence insurance costs are:
1. Bigger Buildings
The bigger will be the size of the building premises, there will be greater risks to it. Greater risks for small businesses imply that a rise in insurance costs is very certain.
Different insurance companies provide liability coverage based on the value of the business assets.
The location of the business buildings in places of possible danger like near jails or wineshops would lead to higher risk. Small businesses would have to pay higher premiums in such cases.
3. History of Claims
The claims history of the business owners also impacts the insurance costs. These include policy limits and tax deductibles.
The history of many claims by a small business will also increase the chances of future claims. So, the insurance company often asks for claims history.
4. Business Owners Policy
The past insurance policies undertaken by the business also plays a role in determining how much is business insurance cost and how much it needs to be paid.
2. Business Income Insurance
If due to certain unforeseen and uncontrolled reasons, the regular course of business operations comes to a halt, the business income insurance can be of significant use.
Business income insurance can help to provide a temporary source of funds or income to cushion against the uncertainties of those periods.
This source of income helps to provide for medical expenses, legal fees, rent, relocation costs, training costs, payroll costs, or utility bills.
When the normal functioning of the business gets disrupted by sudden hiccups, there are still certain costs that need to be paid for.
These costs are irrespective of the conduct of business or the level of economic activity. Such costs are labeled as fixed costs.
A break in normal operations stops or diverts the flow of funds. However, fixed costs are still budgeted. This is when businesses feel the need for Business income insurance.
Hence, business income insurance is an excellent way to manage operating expenses while the business is not in regular operation.
Some insurance companies prefer to call business income insurance a Business Interruption Liability cost.
The monthly median or average rate of premium is $40 and for a year, a business can expect to pay around $480.
Factors Affecting Business Income Insurance Premiums
The factors that help to determine how much small businesses pay for this category of premium are as follows:
1. Business Property Value
The value of the business property is closely related to business interruption liability. Both factors have a directly proportional relationship which implies that with a higher value of the property, more insurance premium needs to be paid and vice versa.
Since this category of business insurance covers income, it is obvious that the income of the company is related to business insurance coverage.
A higher annual revenue would lead to higher insurance costs while a comparatively lower revenue will cost less.
The sector of operation of the business is also of substantial concern when determining how much is business insurance.
Businesses operating in a seasonal business like the woolen industry, raincoat, or umbrella industry are bound to face occasional shutdowns. In such cases, their average costs will increase.
3. Commercial Property Insurance
Commercial Property Business insurance is to be avail to protect the business assets in case of events like theft and burglary.
It provides business property coverage to owned or rented buildings. It also secures the small business from potential future losses arising out of dangers like fire, burglary, and natural disasters like floods and earthquakes.
Regular small business insurance does not include damages from fire or natural disasters. In addition to that, the professional services of the insurance company have a narrow insurance limited coverage.
In such cases, Commercial Property Insurance is a great tool for small business owners to protect their businesses.
However, in certain cases, this insurance category does not provide for property damage from natural disasters.
In such conditions, small businesses have to go for specialized policies for such disasters. For instance, businesses can take Commercial flood insurance to help protect their property from flood damages.
Small business insurance costs for commercial property insurance are around $63 monthly. The average cost for the same for a year or annually is $756.
Factors Affecting Commercial Property Insurance Premiums
The factors that play a role in determining how much is business insurance cost for this category of insurance are as follows:
1. Location of the Business
The place of business activity and premises are key items in this regard. Usually, if a business is located in a location with a history of natural disasters, business insurance costs would go up because the risk associated with it would be higher.
Moreover, the area and its neighborhood are also rated in terms of the probability of theft and burglary.
2. Building Specifics
The business insurance company also takes into account some key specifics regarding the building.
These specifics can be the year of building construction, its capacity, and the structural report can be asked. Generally, older and smaller buildings, which carry high risk, cost less than bigger and older buildings.
Building details are a big part of determining how much is business insurance.
3. Cost of Furnishings, Machinery, and Equipment
In addition to the cost of the building, these costs are also included. The value of the equipment or machinery used in the building together with the furniture and furnishings is usually taken into consideration.
In case of a loss in property, the insurer would have to compensate for these, so their record keeping helps.
4. Presence of Fire Protection Mechanism
The presence of proper fire safety mechanisms in the building can help small business owner to decrease the cost of insurance.
A proper fire safety mechanism could include fire alarms, easy access to the fire department, and a sprinkler system. It would help to reduce the risk of damage from fire considerably.
4. Professional Liability Insurance
Professional liability insurance is useful in protecting small business owners from mistakes committed in their delivery of professional activities.
It helps to provide a shield to the professionals and helps them to perform their duties without any fear of negative repercussions.
Professional liability implies the liability or responsibility of the particular professional in the performance of duties assigned and the results achieved from it.
In some cases, the results from such activities might not be as per the desired wish of either the government or its customers.
In these circumstances, a lawsuit against the professional is very probable. This can cost significantly for small businesses that might not be prepared for it.
However, if the business has access to professional liability insurance, those costs can be easily met.
This insurance category can help cover the cost of those lawsuits and the associated charges. This form of insurance also goes by the name of Errors and Ommissions (E&O) Insurance as it covers errors of professionals.
The average monthly cost for liability insurance can be around $60 while the annual monthly cost for the same can be around $450.
Factors Affecting Professional Liability Insurance Premiums
The factors that affect the business insurance policy are as follows:
1. Scientific Techniques Used
The type of scientific techniques used by professionals in a business is useful in assessing the risk of errors in it.
The use of scientific tools and techniques reduces the scope of personal judgment and provides transparency to the professional service.
Thus, these tools can be quite useful in reducing the chances of errors.
2. The Margin of Error
Insurance companies also take into account the possible margin of error of professionals in the performance of their duties.
They use the historical record of errors to arrive at the possible margin of error. Generally, a higher error margin would imply greater costs to a small business. The margin of error is a big determinant of how much is business insurance.
5. Inland Marine Insurance
Inland Marine Insurance is the type of insurance that helps a small business to protect its interest while its products are in transportation.
It covers the losses incurred due to damage to property, items, raw materials, or machinery. The transport could be from its place of production to its place of sale or consumption.
‘Inland marine’ is a distinct term from ‘marine insurance‘, although there are often considered similar.
While marine insurance refers to the insurance coverage offered to goods transported over water bodies, inland marine insurance refers to the transportation of goods or property on the land surface through any mode of transport like train or truck.
Usually, if a small business has Commercial property insurance, it might be sufficient if the transportation is of low frequency and less value.
However, when the frequency of transportation activities is high and the value of goods is also high, it is imperative for the business to go for inland marine insurance as it offers higher coverage limits.
The median monthly cost for inland marine insurance is $14 while the same for an annual period comes to about $169.
Factors Affecting Inland Marine Insurance Premiums
The factors affecting its cost and premium are as follows:
1. Equipment Cost
The amount of premium or cost to businesses is directly proportional to the cost or value of the equipment, raw materials, property, or goods in transit.
Expensive pieces of equipment or machinery carry a greater deal of risk and so are charged at a higher rate.
2. Frequency of Transit
The premium amount is also closely linked with the frequency of transit made by a business.
Usually, the more will be the frequency, the higher will be the cost of insurance to a business house.
3. Safety of Route
Insurance providers are also chosen for the safety of the route undertaken by the business to transport its pieces of equipment.
Transit through unsafe areas poses a risk and the cost for the insurance company would rise. Hence, transport through such routes is charged more.
6. Cyber Liability Insurance
Cyber liability insurance safeguards the business from the danger of loss because of a data breach.
This insurance also offers services to monitor data and prevent future data breaches. Thus, it is also referred to as Data Breach Insurance while some other companies choose to call it cyber insurance.
A data breach can be simply described as the theft of a database. This personal information can be of the company resources or employees or it can be customer data or any other piece of information that is of personal significance to the company. It can occur as a result of cyberattacks by hackers.
Cyber Liability Insurance can help to pay for the expenses incurred upon dealing with the aftereffects of the cyberattack.
This includes the repair or building of the business database after the attack, along with covering the cost of lawsuits.
The business may also require to address the concerns of its customers by launching a public relations and publicity campaign.
Small business insurance costs for cyber insurance are around $123 monthly and average nearly $1485 annually.
Factors Affecting Cyber Liability Insurance Costs
The factors that are key in deciding how much business insurance costs to a small business are as follows:
1. Prevalent Cyber Security Measures
The insurance company often takes into account the cyber security measures already in use.
The strength of such arrangements in preventing a data breach is assessed. Hence, prevalent cyber security measures greatly impact the decision of companies regarding how much is business insurance.
2. Access to Data Network
The number and designation of people and other networks who have access to the data network are also influential in determining its risk.
The access to data networks is directly proportional to the data risk faced by the business. Data network access plays a big role in deciding how much is business insurance.
7. Workers Compensation Insurance
This type of insurance is for employees who might get a bodily injury in the delivery of their professional Workers’ Compensation Insurance is usually employed to pay for the medical costs arising from such injury. It also helps to pay for the legal charges associated with them.
Workers’ Compensation Injury helps to save money for the business owner from sudden unpredictable accidents of his employees.
It is treated differently by different states in the USA as laws differ from state to state. However, speaking broadly, in most states a business would require this insurance if it has more than one employee.
The average monthly cost of Worker’s Compensation insurance is $70 and the annual cost for the same is $840.
Factors Affecting Workers’ Compensation Insurance Premiums
A few main factors which determine how much is business insurance are as follows:
1. Job Activities
The tasks and duties assigned to an employee are a big determinant of this factor. Job duties help to rate the riskiness of the job.
Usually, insurance costs for blue-collar jobs will be higher than insurance costs for white-collar jobs.
Job activities are a central pillar for deciding how much is business insurance regarding workers’ compensation.
2. Payroll Size
The number of employees in a business firm also plays a big role in deciding how much is business insurance.
The general rule goes that the more the employee strength, the more will be the amount of premium required to be paid by the small business.
The Bottom Line
Insurance policies play a big role in safeguarding the interests of the business. They cushion the firm from sudden losses by creating a pool of premiums paid by different insurance companies.
Moreover, it reduces the overall cost that needs to be paid by a single business by diverting the premium of businesses that have not incurred that loss.
Different Insurance providers offer different types of insurance policies for different risks in business.
The question, ‘how much is business insurance’ finds different answers depending upon the particular policy bought.
For a small business, insurance costs are quite less than the overall benefit they give the business.