Although many small business owners grumble about the cost of small business insurance, few actually know how the cost is determined. There is a range of factors that affect how much companies pay.
Here is a look at eight factors that influence cost the most.
#1. Type of policy. General liability tends to cost the least while employment practices liability insurance has the highest cost.
#2. How big your business is. The physical structure and how big the lot is affects both general liability and property insurance costs, for instance.
#3. Your industry. Your risk profile depends on what type of business you have. If you are in a higher-risk category like construction, you could pay more than someone in accounting for certain types of coverage.
#4. Location. Where you set up shop has repercussions that affect the value of our property, the state, and local laws that regulate business in the area, and geographical risks, like flooding. In addition, do you offer services at other people’s locations? This can affect your costs.
#5. How much you make each year. The more you make, the more likely the amount of a settlement can be higher if you are sued. Basically, the more your company is worth, the more you could potentially lose.
#6. The types of contracts you have. Errors and Omissions insurance, or E&O, is directly tied to your work history and the types of contracts you sign. The cost of E&O is affected by your previous contracts and the type of work you have done in the past.
#7. How many employees you have. Workers’ compensation insurance is directly related to the number of people covered. It also affects E&O and general liability.
#8. How many claims you have made. Just like homeowners and drivers, business owners pay more if they have filed numerous claims.
The more you know about what influences the cost of your insurance premiums, the more you can make changes that will reduce the risk and lower the cost. Costs vary from region to region and from industry to industry.
If a company in the same industry is paying more or less, there can be complex reasons. Understand that insurance isn’t a flat rate, one-size-fits-all system.
It is essential that you develop a positive working relationship with your small business insurance agent, with clear communication. Let him know about changes in your business that can affect coverage. Working together, you can get the best possible coverage at the best possible price.