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What Does Small Business Insurance Cost?

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small business insurance costWhat Does Small Business Insurance Cost?

Curious about the cost of small business insurance?

Thinking of starting a business and want to estimate the cost of business insurance?

Want to compare your cost against the average and see if your premiums are competitive?

Hi, I’m Gordon Coyle and In this video and post, I’m going to talk about small business insurance costs, how to get covered, and what the best options are in the marketplace, coming right up

Alright, small business insurance, costs, how to get it, and all the info you need.

Let’s start with some definitions.

What is a small business in my opinion?

Small businesses are typically firms with less than 10 employees and less than $2,000,000 in revenue, roughly speaking.

Can a small business have 50 employees and $20 million in revenue?

Yes, but for the purposes of this discussion, we’re going to look at the truly smaller companies with fewer than 10 employees.

Next, let’s start with what we’re talking about in terms of coverages for small businesses.

Generally speaking, we’re talking about business owners or BOP Policy, workers compensation, an umbrella policy, and maybe E&O or professional liability insurance since so many small firms today offer professional services.

So, let’s break it down.

Starting with the BOP policy – this is where your general liability and your property coverage will be packaged together with several other coverages to provide a broad all-in-one type policy.

Typically the liability limits are either $1 million or $2 million and supplemented with an umbrella policy we’ll cover in a minute.

On the property side of the policy, you can ensure any buildings you own, your business personal property (also known as contents) as well as your business interruption or business income coverage.

The cost of a BOP policy will vary based on several factors:

  • The type of business you’re in -a contractor will pay more than a doctor’s office.
  • The limits of coverage you choose.
  • Your revenues and payrolls are frequently the rating basis for a policy.
  • Where you are located. Geography has an impact on rates.
  • Your claims history and your experience level

What does small business insurance cost?

Based on what we see on a regular basis for small businesses, the BOP policy is going to average between $1,200 and $3,500 per year. Of course, that will vary based on the factors mentioned a minute ago, but that $1,200 to $3,500 range is a good estimate for an office or retail type exposure.

Workers Compensation

Moving onto Workers Compensation Insurance, here the costs are much more straightforward. premiums for workers comp are based on these factors:

  • The state you operate in.
  • The type of business you’re in will determine what classification codes will be used in your policy.
  • The class codes then determine the rates which are then multiplied by your;
  • Payroll, which then produces your standard premium.

There are other variations and factors that go into the cost calculation, but those are the basic rating factors. The average cost of workers’ compensation ranges between $800 to $4,000 per year.

Umbrella or Excess Insurance

Umbrella Liability is next on our list and sometimes this is also called excess liability insurance – they are very similar but not necessarily the same.

The pricing for an umbrella or excess insurance is based on your bop and auto policies if you have one. Roughly speaking adding a $1,000,000 limit of extra insurance in an umbrella or excess policy will run somewhere between $500 to $1,500 per year.

E&O, Errors & Omissions or Professional Liability Insurance

E&O insurance comes by these three different names, and it’s purchased by any company or firm that provides a professional service or advice for a fee.

Today, you’ll see a lot of companies purchase E&O insurance that is in some sort of consulting company or technology-enabled company. Here the rates will vary widely from one profession to the next but on average the range of premiums we generally see are in the $1,000 to $4,000 ballpark for small business owners.

Okay, if you’ve hung in with me this long you may be saying: “What’s the deal, why can’t this guy just tell me how much business insurance is going to cost and why is he giving such a broad range of premiums?”

I get your frustration.

I often go online looking to find out what something costs and feel like I’m getting the run around when someone won’t tell me the price of something. So, I know how you’re feeling, so let me explain a bit.

As you can see, there are dozens of factors – sometimes hundreds of factors – that go into rating a small business insurance policy. Each type of company and each particular firm have different profiles that will affect the rate you end up paying for each line of business.

That’s why I’ve expressed these numbers in ranges. In fact, it’s possible that a small business could pay $20,000 or more for just their BOP policy and that leads me to my next point.

How do you make an educated decision or find out what the real costs are?

In my opinion, that’s going to take a conversation.

Now I realize many people aren’t crazy about picking up the phone to talk to a salesperson – let alone an insurance salesperson! In fact, most buyers like you are probably about 80% of the way through their buying journey before they do pick up the phone or email a seller.

It’s the way we do things today – as buyers we want to be in control. We want to know what we’re buying, what we can expect to pay, and what we can expect the process to look like.

And that’s great.

But at some point, you will need to engage a seller, so let’s jump into the next step of the process – how do you go about getting small business insurance? What’s the best way to know you’re getting a good deal?

You can buy small business insurance through three main channels which I’m going to describe.

Now, I’m going to be transparent here and say that I’ll be as objective as I can, but please realize that I am an insurance broker so I have some bias here, but stick with me.

Let me start by saying that your business insurance is what stands between you and potential claims which can negatively impact your business.

From the mild disruption to the devastating bankruptcy, you want to make sure you get this right and protect your assets.

The first channels you’ll see a lot online are direct writers and captive insurers.

These are insurance companies that sell directly to the public through a call center. The agents in these call centers are employees of the insurance company.

The advantage of this channel is speed. For the most part, if your business fits this insurer’s profile they can quickly quote and offer coverage. The disadvantage is two-fold. You may only be seeing one quote from this channel and you’re not getting an advocate working for you.

If things go sideways down the road, it’s very difficult to ever speak to the same person twice and as an employee of the insurance company, you know where that call center rep lies.

The second channel is what we call insur-techs.

These are firms that have enabled technology to sell insurance. They generally work in a human-free interaction world. Low touch, high tech make insurance transactions fast, simple, and straightforward.

As mentioned, fast and simple is the clear advantage in this channel. But, in my opinion, that can also be a disadvantage.

If there’s little to no expert interaction to ask you the right questions, it leaves the door open to problems, gaps, missed coverages, etc. down the road. In my opinion, fast and simple isn’t the best route, especially as your business grows.

The third channel is insurance brokers.

Like me, who has carved a niche online and attracted buyers who are looking for a higher touch, higher level of expertise experience.

The advantage here is that an expert broker can shop various insurers for you and find the best fit of coverage and price for your needs. The disadvantage is that it might take a bit longer than direct writers or insur-techs.

The trade-off is a more thorough approach to your protection, a relationship you can count on down the road, and an advocate if things go wrong.

Wrapping it up

As you can see, you’ve got choices. Lots of choices when it comes to buying small business insurance.

As I’ve said, getting your protection right is important. Really important. Price is a big factor, but should it be the determining factor?

Probably not.

I think you’ve got to weigh expertise, advocacy, service after the sale, relationships, and trust when making a decision on who to buy small business insurance from.

If you think I’m the type of person you’d like to work with, that would be great!

Reach out and let’s talk about what you need. Have other questions or concerns I didn’t address in this rather long video? Reach out as well!

I’d love to hear from you!

I work across the country and love helping business owners with their risk and insurance issues so let’s chat.


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