If you are a small business owner, you need to protect your business with insurance—even if your business is home-based. This will provide coverage for your business against various risks such as debt, accident, equipment damage, burglary, theft, lawsuits, and so on. Many business owners pay huge sums of money every year in premiums for insurance they will never need.
So, the question of what type of insurance policies your small business needs should come before questions about cost. Once you know which policies are appropriate for your small business, you will know what to pay for and what you should ditch.
However, you must bear in mind that the average cost of business insurance for a small business varies widely depending on a number of factors, such as the following:
- Your industry
- Your geographical location
- The number of employees you have
- The business risks you face
- The types of insurance policies you choose to buy
- The coverage limits you select
Before you go ahead to buy any insurance policy for your small business, you need to familiarize yourself with a range of insurance policy types and costs so you have an idea of what to expect from a quote. Here are the common types of insurance policies that you will most likely need and the average costs of each.
How Much Does It Cost to Get Insurance for Small Business
Table of Content
General liability insurance is the first kind of insurance coverage you should consider for your business. This type of business insurance covers your products or services, completed operations, and premises operations. So, if you run a food truck business and someone gets food poisoning after eating food bought from your truck, general liability insurance covers you.
Similarly, if you run a construction company, and you build a new floor, which later warps because of the way it was installed, you are covered. And if someone gets hurt after falling from a facility you rented for your business, you are covered. The cost of general liability insurance varies widely and depends largely on whether your business is a sole proprietorship or a corporation, alongside other factors, such as level of risk.
So, a sole proprietor might pay $500 per year for general liability insurance, but a small consulting firm is likely to pay over $3000 per year. Similarly, a sole proprietor who hems garments using a home office has limited liability risks, but a land scraper may pay upwards of $15,000 annually due to increased risk.
2. Errors and omissions insurance
This type of insurance, also known as professional liability insurance, covers experts who render professional advisor or consulting services. If your advice leads to poor results and the client files a lawsuit against you, you will be covered for your legal fees and defense costs. On the average, an errors and omissions insurance policy attracts an annual premium of about $1,200, and you could have $1,000,000 worth of professional liability coverage or more.
3. Commercial auto insurance
You need this type of insurance if your business owns vehicles that are operated by you or your employees for business purposes. The rates for auto insurance vary widely based of factors such as make and model of the vehicle, the driving history of the drivers, the age of the vehicle, the frequency of use, the average distance travelled and so on.
4. Worker’s compensation insurance
The law requires that you have this type of insurance if you will hire employees to work for you. This coverage protects you against costs associated with workplace illness and injuries. The cost of the insurance depends on the number of employees your business has, tax classification of those employees, the type of work they are doing, and other factors. In some states and countries, the government regulates the pricing for worker’s compensation insurance.
5. Commercial excess liability insurance
This extra insurance comes in handy if you exceed the coverage limits of your general liability or auto insurance policy. Typically, it costs about $300 per year for $1,000,000 additional coverage.
6. Bank account theft insurance
Following the increasing rates of theft from business bank accounts, this new product was introduced to protect small business owners against cyber theft or fraudulent wire transfers. In the united states, the Commercial Deposit Insurance Agency provides this type of insurance and charges a premium of $175 per years for coverage of up to $50,000.
In conclusion, I want you to know that the right coverage for your small business will be a combination of some of these coverage types, which may be offered separately, but can sometimes be packaged into a business owner’s policy, also known as a BOP, which typically gives you a cost savings as a bundled plan.