11 Factors Which Affect The Cost Of Your Business Insurance

When your business has made the smart decision to purchase business insurance, it’s time to begin considering cost factors. Businesses sometimes flinch at the monthly cost of business insurance, but the monthly cost of premiums is much less than needing to pay for legal fees when a company is sued, medical bills if an employee is injured on the job, or the cost of repairs when a contractor makes a mistake that must be fixed at the business’s expense.

As you purchase business insurance, there are many different factors that can affect the cost. What type of policy you get, whether or not the company you work with has a discount for companies that get multiple policies, and credit checks can all have minor effects. These 11 factors, while not exhaustive, will give you an idea of what factors will be in play as you get a business insurance quote.

1. The number of employees or contractors who do work for your company.

For coverage like worker’s compensation or E&O coverage, the number of employees or contractors doing business for your company will logically affect the cost of the coverage.

2. Business experience.

If your company is brand new, then professional liability insurance is probably going to cost more. If your company has several years of operations without issues, however, this insurance might cost less.

3. Sales volume.

The higher your annual sales, the higher a general liability settlement could be against your company. Higher potential settlements equal higher potential premiums.

4. Age and type of building and equipment.

If you have a couple of computers in a new building that is weather proofed and earthquake or hurricane resistant, for example, your property or rentersinsurance premiums are going to be much less than if you operate a heavy machinery plant in an old industrial complex.

5. Replacement versus cash value.

Some policies offer to pay you the value in cash of any damaged or destroyed property, equipment, or merchandise. The premiums are lower for this type of insurance because the payment you receive may not be enough to replace what you’ve actually lost. The alternative is replacement, where you get a payment equal to the cost of replacing what has been damaged. That is more expensive, but may be more appropriate for your company. 

6. IT Services.

If your company collects sensitive data, or works with companies that do, you may need protection from data breaches and other security threats. This can up your overall premium costs.

7. Which state is your business in?

Different states have different rules for how much coverage, and what types of coverage, your business must carry. Your local insurance agent should be familiar with these rules, but it’s often a good idea to check with a local business agency as well. Your state can absolutely affect your insurance cost.

8. Geography.

If your business is in an area prone to extreme weather, flooding, earthquakes, or other natural phenomenon, your property insurance is likely to be higher than in less extreme areas.

9. Physical size of your location.

If you have a bigger lot and a bigger building, property insurance is going to be more expensive, since there is more physical square footage being insured.

10. Claims History.

To some degree this depends on the insurance company, but in general, the more times you use your insurance, the more expensive your insurance becomes. You are seen as higher risk because you need to use your insurance more often.

11. Previous Contracts.

Some E&O insurance policies include the option of covering previous contracts. If you are looking for this sort of coverage, the insurance company will want to look over those contracts, and that can affect the cost of your coverage.

Purchasing business insurance can be intimidating. Companies can feel concerned about whether or not they will be able to cover their premiums during lean times, or if something unanticipated comes up with their company.

But opting out of purchasing business insurance puts your company at risk. Remember: you don’t have to actually have made a mistake to get sued. Even an illegitimate lawsuit can have costs that quickly run into the tens of thousands before a case even gets to court.

To keep your business healthy and strong, choose the right amount of insurance for your company, and revisit the amounts of coverage periodically. If any of these factors change, it’s important to let your insurance agent know and make sure your coverage is still right sized.