What Affects the Cost of Business Insurance?


Bryan Huynh

- Updated February 22, 2024

What Affects the Cost of Business Insurance?

As a business owner, you have a lot on your plate. Not only are you managing clients, employees, and everything in between, you’re responsible for your company’s success. That’s a lot of pressure, especially because you can’t control everything. What if an employee slips at work? What if a customer sues? This shouldn’t fall on you to solve. And thankfully, if you have business insurance, it doesn’t have to.

What is Business Insurance?

Business insurance is a broad term referring to different classes of insurance for businesses. And while there are many types of insurance, many cover things like property damage, legal liability, and employee-related risks.

The goal of business insurance is to help protect your business from certain risks. Whether vandalism, lawsuits, or property damage, this insurance keeps your business from financial losses.

There’s a common misconception that not every business needs insurance. In fact, some small companies choose to opt out of insurance altogether. The problem with that is you never know when a problem may occur. For example, let’s say there’s a storm and a tree falls, destroying your office space. If you don’t have insurance, you’ll have to pay that cost out of pocket. You don’t want that to happen, right? That’s why business insurance is so crucial.

What are the Different Types of Business Insurance?

As mentioned, there are several different types of business insurance, including:

1. General Liability Insurance

General liability insurance focuses on business-related claims. Simply put, this insurance covers things that can up during a typical work day, such as an injury, damage to equipment, etc.

General liability insurance helps pay for an employee's medical expenses and the cost of repairing broken equipment. If an employer is hurt and sues the company, the insurance will also cover the cost of a defense.

2. Commercial Property Insurance

Commercial property insurance protects your business's physical assets from damage or theft. For instance, if there’s a flood and the office is damaged, this insurance will reimburse you for repairs. If a thief breaks in and steals equipment, this insurance also covers that.

For the most part, commercial property insurance covers everything inside and some outside, including computers and equipment, furniture, landscaping, exterior signs, etc.

3. Workers' Compensation Insurance

Workers’ compensation, commonly referred to as “workers’ comp,” is insurance that provides medical care and financial benefits (like lost wages) for workers who are injured or become ill as a direct result of their job. Disability insurance may also be included in workers’ comp.

Chances are, you’re familiar with workers comp. This type of insurance has been around for decades, and most states require businesses to offer workers' comp. Regardless of the type of business, workers’ compensation is essential. Injuries in the workplace are all too common, and without workers’ comp, you could end up paying up to millions in legal fees, wages, and medical expenses.

4. Commercial Auto Insurance

Commercial auto insurance protects businesses from costs if an employer is involved in an auto accident using a vehicle for business properties. As you can probably tell, this insurance isn’t necessary for every business. If your employees don’t have to drive for work, you probably don’t need commercial auto insurance. However, if you own a trucking company, you will want to have commercial auto insurance.

5. Professional Liability Insurance

Professional liability insurance protects employees against negligence, errors, or other claims brought on by clients. To put it in perspective, let’s say you provide a service, and your client takes you to court because they claim you made a mistake. Professional liability insurance covers the cost of your legal defense and any damages awarded to the client. This insurance is popular among lawyers, attorneys, and client-facing professionals.

6. Cyber Liability Insurance

Cyber liability insurance, commonly called cyber security insurance, protects businesses in case of a high-cost data breach or software hack. If your business is hacked and sensitive information is stolen, this insurance will cover associated expenses, like credit monitoring, legal fees, and any damages awarded. Cyber liability insurance ensures your business can recover from financial losses brought on by cyberattacks.

7. Product Liability Insurance

Product liability insurance is ideal for business owners offering products. If a customer says your product caused an injury, this insurance will cover your defense and any awarded damages. Product liability insurance is essential, and not just for big companies. Regardless of the type of product you sell, you want to make sure you have this insurance in place.

8. Business Owner’s Policy (BOP)

A business owner’s policy (BOP) combines different types of coverage into one insurance policy. A few common ones included are general liability, property damage, workers’ compensation, etc. With these coverages bundled together, BOP offers coverage from natural disasters, theft, injuries, property damage, and other claims that potentially arise.

Let’s say you own a small catering business that’s destroyed during a strong storm. Not only will BOP reimburse you for the costs to repair, but it’ll also reimburse you for the wages missed while repairing the damages.


How to Choose the Right Business Insurance?

With so many options available, choosing the right insurance for your business can be difficult. That’s why it’s important to take your time with this decision. Make sure you know your company’s specific risks, review the deductible, and don’t hesitate to ask questions.

Here are eight tips to help you pick the right business insurance:

1. Check your State Laws

Some states require businesses to have specific types of insurance. For example, in most states, it’s required companies have workers’ compensation. Before choosing your business insurance, make sure you’ve reviewed your state laws. You should also review your contracts (whether that’s with the landlord of your building) to see if they require specific insurance.

2. Focus on Size

The size of your business will play a factor in choosing business insurance. For one, since small businesses typically have fewer people and fewer properties, they can be eligible for insurance discounts. On the other hand, large businesses are more complex and may need more coverage/higher premiums. Make sure you know what insurance is advised for your business size.

3. Focus on Value

In addition to size, your company's overall value can impact your business insurance. If your company has a lot of inventory and expensive equipment, you’ll probably categorize for a higher deductible. On the flip side, if your business has a small office with few supplies, you could probably find insurance with a lower deductible.

4. Pay Attention to Deductibles

There’s a good chance your business insurance will include a deductible, the amount your business will be expected to pay to be covered. Once your deductible is paid, your insurance will go into effect, whether reimbursing you for damages or legal fees.

Think of deductibles the way you would down payments. The higher your down payment, the lower your monthly bill, right? The same is true about your deductible. The higher your deductible, the lower your premium. Because of this, many businesses chose to go with a higher deductible. If you ever need to file a claim, you’ll have to pay that deductible to get coverage. Make sure your business can comfortably afford the deductible you choose.

5. Know your Company’s Risks

Every industry faces different risks. For instance, if you own a construction company, you may want to invest more in workers’ compensation insurance. Commercial auto insurance may be your priority if you own a delivery service. Before picking business insurance, write down your industry and company’s risks. Then, let that information guide you to the correct type of insurance.

6. Don’t Underestimate

In the event of an incident, the last thing you want is minimum insurance coverage. While accidents and errors don’t happen all the time, they happen more often than not. If you’re not effectively insured, you could have to pay a fortune. This could impact your businesses in a way that can’t be reversed. It’s better to be prepared than sorry. This doesn’t mean you need to have every type of coverage, but you should be covered for things that could happen.

7. Work with a Professional

Working with a professional is the only way to ensure you have the right business insurance. Insurance is complex, and it can be challenging to know what’s best. Thankfully, insurance agents can help. They’re trained in helping business owners find the right coverage and know how deductibles and premiums work. Don’t be afraid to reach out for help.

8. Pay Attention to Insurance Providers

What’s one of the first things you do before making a purchase? Chances are, you do some research. You look up the company, read reviews about the product, and maybe even compare prices. Well, it’s a good idea to do the same thing when choosing business insurance. In addition to looking at policies, make sure you evaluate insurance companies. Look at their ratings and customers, and read the reviews. The goal is to make sure you’re working with reputable companies.


What are the benefits of Business Insurance?

Now that you know more about business insurance and how to choose the right one, let’s focus on the benefits. It’s important to note that business insurance isn’t just beneficial to employers. It protects employees and clients and can make or break the success of a company.

Here are five reasons business insurance is so essential:

1. Required By Law

In most states, business insurance isn’t optional - it’s required by law. Without it, you’ll end up paying out of pocket in an emergency. And even your state doesn’t require business insurance, some contracts may. For example, if renting an office space or applying for a loan, you may be required to show proof of insurance.

2. Helps Cover Lawsuits

As a business owner, the last thing you probably want to think about is being sued. Unfortunately, lawsuits are common. In fact, according to research, almost 90% of United States companies deal with some type of litigation. It’s common, which is why it’s important to be proactive. Business insurance helps cover the costs of those lawsuits.

3. Helps Cover Natural Disasters

Similar to lawsuits, natural disasters aren’t always top of mind. Depending on where you live, you may not think you’d be impacted. But it’s important to note that natural disasters aren’t just hurricanes and tornadoes. If a pipe bursts and floods your office, that would fall under a natural disaster and be covered by business insurance.

4. Protect Customers & Employees

A Business Owner’s Policy (BOP) is a type of business insurance that covers business liability. For example, let’s say a customer falls or is injured in another way on your property. A BOP will cover those associated costs, like their medical bills. Business insurance also helps employees, thanks to workers’ compensation. If you suffer a work-related injury or illness, workers’ compensation can help cover your medical expenses, missed wages, etc. Workers’ compensation will also cover funeral expenses.

5. Increases Credibility

And finally, business insurance can provide credibility. Think about it for a second. As a customer, would you rather work for a business that has insurance or doesn’t? Exactly. Having insurance shows customers that you value them and your employees. It also shows forethought and preparation. While you don’t want things to go wrong, it’s good to know you’re prepared if they do.

Final Thoughts

Mistakes happen. Regardless of the type of business or its success, there are always risks. That’s why business insurance is so crucial. It ensures your company has the protection it needs when it needs it. Not having business insurance is like driving a car without wearing your seatbelt. Sure, you may be fine, but what if there’s an accident? As a business owner, you are responsible for caring for your employees and customers. To do that, you need to choose the right business insurance.

About The Author

Bryan Huynh

Bryan Huynh

Product Tester & Writer

Bryan Huynh is a dedicated Product Tester & Writer. Just as insurance has your back, Bryan works to review and inform you about the wide range of insurance products available, ranging from business, auto, health, home, pet, to life insurance.

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