Your monthly commercial insurance bills may vary based on a number of factors. These can include where you operate, the type of work your business does, how many claims you’ve filed before, your annual income, employee headcount, your company’s safety procedures, and the specific level of coverage provided by your policy.
The average business can expect to pay at least a couple hundred dollars per month for basic small business insurance coverage—and potentially much more for comprehensive insurance protection. Fortunately, you can take practical steps to save on commercial insurance, including shopping around, raising your deductibles, bundling policies, and reducing your chances of needing to file a claim.
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Top factors that affect the cost of business insurance
Business insurance premiums can range widely depending on where the business is based, how you operate and the type of coverage you need. Here’s a snapshot of what goes into determining your premium:
Industry and type of business
Every industry has unique risk factors that may be covered by commercial insurance, so your insurer will consider common risks in your industry when determining your rates. For example, retail businesses may encounter higher-than-average commercial property insurance premiums because they often maintain a high volume of inventory that may be expensive to replace after a destructive peril.
In addition, how you operate your business can influence your risk of filing claims and affect the cost of your business insurance policy. For example, a business with a high degree of public visibility—like a fashion brand with a large social media following—may be more exposed to lawsuits from disgruntled customers, and therefore, have a higher coverage need for commercial liability insurance.
Business size and revenue
Commercial insurance is often more expensive for larger businesses than for smaller ones. The more money a company brings in each year, the more complex its operations tend to be, so commercial insurance companies may charge more to cover the greater financial risk and increased exposure to liability claims.
Number of employees and payroll
Similarly, some commercial policies may cost more based on the number of people you employ. For example, as headcount increases, there’s a greater chance that you could be sued over a violation of employee rights, meaning you may have to pay more for employment practices liability insurance. Likewise, workers’ compensation insurance premiums are calculated based on your payroll, leading to higher premiums for businesses with a larger workforce.
Business location
Where you operate affects your exposure to certain kinds of liability or property damage risks. For example, a restaurant in a large city with heavy foot traffic will likely pay more for general liability insurance than a similar restaurant in a small, rural town.
Claims history
Insurers will also review the number of claims you’ve filed in the past. For example, if you’ve filed several general liability insurance claims before, it signals that you have a high exposure to general liability lawsuits, so you may be charged more for coverage. If you’ve never filed a general liability claim, however, your insurer may view you as a low risk to file such claims and charge you less for coverage.
Property, equipment, and inventory
Commercial property insurance prices are typically higher for companies with a large amount of property, including buildings, equipment, and other types of business personal property that would be costly to replace if destroyed. In general, businesses with more to lose in the event of a lawsuit may need to pay more for liability insurance.
Coverage types and policy limits
The number of coverage types you choose and your coverage limits will affect how much you pay for business insurance. Put simply, policies with more coverage per claim usually cost more.
Deductible
You may be able to lower your premiums by increasing your deductible, which is the minimum amount you agree to contribute out of pocket toward your own claims. Higher deductibles mean you’re taking on more of the financial burden in the event of a sudden loss. Not all coverages require a deductible, but you may have to pay one when you file a claim on your commercial property, general liability, or commercial auto insurance.
Risk management and safety practices
In some cases, you could qualify for discounted rates if you implement risk management procedures that make you less likely to experience and file claims. For example, by installing security cameras, you could lower your exposure to theft and potentially save money on commercial crime insurance.
If you’ve been in business for several years, you may already have established safety protocols and a clean insurance claims history, meaning your extended business tenure may make you eligible for lower rates. Conversely, a startup may have to pay more for commercial insurance at first because it hasn’t yet proven itself to be a low-risk enterprise.
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How different types of business insurance are priced
Here are some of the most common types of commercial coverage, how much they cost on average, and what affects business insurance costs for these policies.
General liability
Most businesses pay around $500 to $1,200 annually for general liability insurance, which covers medical bills, property repairs, and legal fees if you’re held responsible for someone’s injury, damage to their property, or some other financial loss experienced by another person or entity. General liability insurance costs depend heavily on your revenue, location, and industry.
Small businesses can often save up to 10% on their premiums by bundling core coverages into a business owner’s policy (BOP) for about $500 to $3,000 per year. BOPs automatically include general liability, commercial property, and business interruption insurance. In addition, many insurance companies allow you to customize your BOP by adding optional coverage types.
Workers’ compensation
Workers’ compensation insurance costs roughly $1,000 to $2,500 per year on average. It’s often required by law to cover an employee’s lost wages and medical costs—and potentially your legal fees—if the employee experiences an injury on the job. Relevant cost factors when calculating workers’ compensation insurance rates include your industry, your claims history, how many people you employ, and how much you pay them.
Professional liability
It may cost an average of $4,000 to $15,000 per year to maintain professional liability insurance. Consultants, accountants, architects, and other professional service providers need this coverage type to cover their legal expenses in case they’re sued over a mistake made while carrying out their professional duties. To set your professional liability insurance rates, an insurer may consider your company’s size, policy limits, and level of risk.
Commercial auto
You can typically expect to pay an annual average of $1,500 to $7,000 for commercial auto insurance. This legally mandatory policy may cover liability claims, physical damage to your vehicles, treatments for employees injured in accidents, and more, depending on the coverages included in the policy. Your vehicles’ value and mileage, employees’ driving records, policy details, and industry significantly influence your commercial auto insurance rates.
Why two similar businesses can pay different insurance premiums
Since insurers consider many factors when underwriting commercial insurance policies, minor differences between two seemingly similar companies can result in very different insurance rates. For example, workers’ compensation coverage is priced using an experience modification rate that compares your claims history to that of other businesses in the same industry. In other words, your premiums may differ from similar companies based on how often you file claims.
Even if two businesses have almost identical underwriting, insurance premiums can be dramatically different if one of them opts for higher coverage limits and/or lower deductibles. In addition, each insurance company has its own premium calculation formulas, so two similar businesses could pay different rates simply because they choose to work with different carriers.
What can make business insurance more expensive?
Several factors directly related to your business operations can make commercial insurance more expensive. For example, your premiums could rise if you expand operations and bring in more annual revenue, move to a higher-risk location, buy more insurance coverage, or file multiple claims for covered losses. External factors could also contribute to higher insurance costs, including:
- Increased frequency and severity of natural disasters
- Inflation
- Supply chain disruptions
- Vacancy of business-owned properties
- Higher health care costs
- Increased prevalence and complexity of lawsuits
Factors affecting small business insurance premiums at a glance
- Insurance companies consider a variety of factors to assess the risk of covering each commercial policyholder and set an appropriate premium.
- Some of the main factors insurance providers consider when setting rates include your company’s industry, size, location, claims history, and policy details.
- If you have a fairly high exposure to certain losses, you may be able to qualify for insurance discounts if you implement risk management procedures to protect against such losses.
- External factors may also affect your insurance costs, including climate change, inflation, supply chain interruptions, and landmark court rulings.
- The average business can expect to pay at least $3,000 per year for a basic commercial insurance policy that includes general liability, commercial auto, and workers’ compensation coverage.
How to lower the cost of business insurance
You may be able to lower the cost of business insurance for your commercial enterprise by understanding your coverage needs, making adjustments to your policy, lowering your risk profile, and comparing insurers. Run through this checklist:
- Bundle multiple insurance coverages from the same insurer through a business owner’s policy or commercial package policy.
- Submit a single payment to cover your entire premium at the start of your policy’s coverage period.
- Update your security systems, train your employees, and make sure your standardized safety protocols have been clearly communicated.
- Choose the highest deductible you can reasonably afford out of pocket.
- Shop around to find the insurance company that can offer the best deal on the coverage your business needs.
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Frequently asked questions
How much does business insurance cost?
The average business can expect to pay at least $3,000 per year for a basic policy that covers common risks and meets legal requirements. Ultimately, your company’s premiums will depend on factors like your location, industry, claims record, and policy details.
Does business revenue affect insurance premiums?
Yes, your company’s revenue may affect your commercial insurance premiums, since businesses with higher annual revenue are generally viewed as riskier to insure.
How often should a business review its insurance coverage?
Business owners should generally review their commercial insurance coverage once a year, or whenever they substantially reduce, expand, or otherwise alter their commercial operations.
Will choosing a higher deductible lower my business insurance premium?
Yes, choosing a higher deductible for applicable business insurance policies generally results in lower premiums.