With the obvious caveat that every business is a little bit unique, the average business can expect to pay at least a couple hundred dollars per month for an insurance policy covering some of the most common commercial risks and complying with legal requirements. However, premiums can easily exceed a couple thousand dollars for larger, higher-risk businesses looking for more comprehensive insurance protection.
Insurance companies consider factors such as your location, industry, business size, years of experience, coverage limits, deductibles, and claims history when setting your premiums. Even if your company’s base premiums are high, you may be able to save on commercial insurance by comparing quotes, bundling policies, choosing higher deductibles, and reducing risks that could lead to claims.
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What determines the cost of business insurance?
Business insurance costs vary based on factors such as your industry, number of employees, annual revenue, location, claims history, coverage limits, business assets, and years in business. These factors help insurers estimate how likely you are to file a claim and how much that claim could cost. Let’s take a closer look at each.
Industry
Your industry plays a major role in determining your commercial insurance premiums, since businesses within a given industry may face common risks that make them more likely to file certain types of insurance claims. For example, a construction company will generally pay more for workers’ compensation insurance than a software development company because construction workers face a much higher risk of on-the-job injuries.
Number of employees
Having more employees may raise your risk of filing claims on certain types of business insurance—such as workers’ compensation and employment practices liability insurance—so your premiums may vary based on the number of people you employ. How much you pay your employees also matters, as insurance companies may directly factor in your payroll when calculating your workers’ compensation insurance costs.
Annual revenue
In general, the more money your company brings in each year, the more you can expect to spend on commercial insurance policies. Insurance providers take your annual revenue into account because high-revenue corporations typically have more complex and far-reaching business operations, which opens them up to more risks than a comparatively small business.
Business location
Insurers must consider where your business operates when setting your insurance rates, since many location-based risk factors can influence your likelihood of filing claims. For example, businesses in regions that are especially vulnerable to windstorms may have to pay more for commercial property coverage. Similarly, general liability insurance may cost more in densely populated cities with a large amount of foot traffic.
Claims history
To differentiate your enterprise from other businesses in the same industry or location, your insurance company will naturally need to consider your individual claims record. If you’ve filed multiple claims on a certain type of business insurance policy before, your insurer may view you as more likely to file additional claims in the future, and it may charge you more for coverage as a result.
Coverage limits
Commercial insurance prices depend on the details of your policy, including the maximum amount of coverage available for any given claim. In addition to your coverage limits, insurance companies may set your premiums based on the number of coverage types included in your policy and the deductibles you agree to pay out of pocket for certain claims.
Business assets
If you own and need to insure a large amount of highly valuable buildings, equipment, and inventory, you can expect to pay more for certain types of policies, such as commercial property insurance. More valuable assets could also lead to higher liability insurance costs if they make you more likely to be targeted by lawsuits. For the same reason, companies with a high degree of public visibility often have to pay more for liability coverage.
Years in business
Businesses established for many years are more likely to have an extensive insurance history and a proven track record of fiscal responsibility, making them less risky to insure and eligible for lower insurance rates. Conversely, startups can often expect higher insurance premiums during their first few years of business—when they are typically viewed as a higher risk to cover.
Average cost of business insurance by type
In the next few sections, you’ll see typical cost ranges for some of the most common types of business insurance coverage, along with an overview of which cost factors are most relevant for each coverage type.
General liability
The average business can generally expect to pay about $42 to $100 per month for general liability insurance. This type of insurance covers your business if you’re held liable for causing someone else to experience a bodily injury, property damage, or personal and advertising injury. Your company’s industry, location, and sales revenue will play an especially big role in shaping your general liability insurance premiums.
Business owner’s policy (BOP)
Business owner’s policies bundle general liability, commercial property, and business interruption insurance into a convenient package for small businesses, and they typically cost around $40 to $250 per month—which amounts to average savings of over 10% compared to buying each coverage type separately. BOP premiums depend heavily on your industry, your policy details, your claims history, and the size and scope of your commercial operations.
Commercial property
Large businesses that don’t qualify for BOPs can generally expect to pay more for commercial property insurance—usually about $70 to $400 per month. This policy covers sudden damage to your commercial buildings or business personal property, and its prices are influenced by your location, how large your buildings are, the materials used to construct your buildings, and whether you’ve implemented fire or theft prevention measures.
Workers’ compensation
On average, it costs between $83 and $208 per month to maintain workers’ compensation insurance, which covers medical bills, lost wages, disability payments, and similar expenses for employees who get sick or injured because of their work. Your claims history, your payroll, and the level of risk associated with your industry will have a big impact on your workers’ compensation insurance bills.
Commercial auto
It costs the typical business anywhere from $125 to $583 per month to buy commercial auto insurance. A commercial auto insurance policy may cover liability claims, physical damage to your vehicles, and other losses stemming from commercial vehicle accidents. Factors that will affect your premiums include your coverage details, where you operate, your employees’ driving records, how often and far they drive, and what they use commercial vehicles for.
Professional liability
Professional liability insurance costs roughly $300 to $1,250 per month on average, and it covers professional service providers in case they’re sued for negligence, misrepresentation, inaccurate advice, or other errors. When calculating your professional liability insurance premiums, insurers will pay close attention to your employee headcount, business size, location, coverage limits, and risk exposure.
How much is business insurance by industry?
Each type of business has its own unique risk factors—meaning commercial insurance costs can vary widely by the industry. To get an idea of what premiums can look like for different types of companies, here’s a breakdown of median commercial insurance rates from ERGO NEXT Insurance for multiple industries:
How insurance companies calculate premiums
Insurance companies may rely on standardized formulas to calculate the costs of certain types of business insurance policies. For example, the following formula is commonly used to set the price of workers’ compensation insurance:
- Class code: To calculate the cost of your workers’ compensation insurance policy, your insurer will begin with the classification code assigned to businesses in your industry by the National Council on Compensation Insurance. Your NCCI class code helps establish a starting rate by measuring the likelihood that employees in your industry will get injured on the job.
- Experience modification rate: Next, your insurance carrier will multiply your class code rate by an experience modification rate ranging from 0.75 to 1.25. Your EMR compares your claims history to that of similar businesses to determine whether you are more or less likely to file claims than other companies that do the same type of work as you.
- Payroll: Companies with higher payrolls generally have a greater risk of filing workers’ compensation claims—not to mention the fact that the insurer may have to pay out more in partial income replacement benefits to injured or disabled employees.
What type of business insurance is the least expensive?
General liability insurance tends to be the cheapest type of commercial insurance. This foundational coverage type is recommended for every business owner because it can cover some of the most common commercial risks. Other affordable coverage types include BOPs, which are primarily designed for small and low-risk businesses, and commercial umbrella insurance, which only steps in for claims that exhaust the limits of your other liability policies.
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Commercial insurance costs at a glance
- Average cost: A typical small business can expect to pay about $250 to $900 per month for a commercial insurance policy that provides basic coverage for common losses and meets state legal requirements. However, a policy that provides more thorough or industry-specific protection will likely be more expensive.
- Cost factors: Average business insurance costs vary based on a number of factors, including your company’s size, location, history, policy details, and commercial property value.
- Industry considerations: Each industry faces its own unique risk factors, so business insurance costs may differ based on the type of work your business does. For example, construction contractors and restaurant owners can frequently expect to pay more for coverage than beauticians and fitness instructors.
- Starting coverage: Most businesses need general liability coverage as a starting point for their commercial insurance policy. How much liability insurance costs for a business may depend on whether it bundles general liability coverage with commercial property and business interruption coverage in a business owner’s policy (BOP).
- Requirements: If you have employees or use commercial vehicles, you may be required by law to carry workers’ compensation or commercial auto insurance, depending on where you operate.
- Other coverage options: Some other types of commercial insurance may be necessary based on the specific risks inherent to your industry—such as professional liability insurance for consultants and other professional service providers.
How to reduce small business insurance costs
You may be able to lower the cost of your small business insurance policy by following simple steps such as:
- Comparing quotes from multiple insurance companies before choosing a policy
- Combining coverages through a business owner’s policy or a similar insurance bundle
- Paying your entire premium for the year at the beginning of the coverage period
- Implementing loss prevention protocols, such as mandatory employee training, advanced security systems, and clearly communicated safety procedures
- Raising your deductible on applicable policies
The takeaway
Depending on your industry, business insurance can be expensive. But the shield it affords you—and the peace of mind you’ll get from knowing that an accident or a lawsuit won’t cripple you financially—is well worth the money.
In many cases, there are specific types of business insurance that are required. Even if they’re not, relevant policies are a no-brainer if you can afford them. You can potentially reduce the cost by comparing multiple insurance providers, bundling your insurances, and raising your deductibles.
Frequently asked questions
Is business insurance required by law?
Yes, certain types of business insurance—including workers’ compensation and commercial auto insurance—may be required by law, depending on your location and commercial operations. Be sure to check your state’s laws to see if there are any additional insurance requirements for your industry.
Is business insurance tax deductible?
Business insurance premiums may be tax deductible when the coverage is an ordinary and necessary business expense. Deductible premiums can include certain property, liability, workers’ compensation, commercial auto, business interruption, and malpractice insurance premiums.
Can you save by bundling multiple business insurance policies?
Yes, you can typically save money by bundling multiple insurance policies from the same commercial insurance company together.
How can you lower your business insurance premium?
You may be able to lower your business insurance premiums by bundling policies, paying annually, mitigating common risks your business faces, picking a higher deductible, or shopping around.
What factors impact the cost of commercial insurance?
Factors that impact how much commercial insurance costs for your business include industry-specific risk factors, size and scope of commercial operations, location, claims history and financial record, policy details, and value of the covered business property.