In today’s business world, insurance is an essential consideration, but the cost of coverage varies widely from business to business. The variation of business insurance costs from company to company depends on the business size and its nature.
A business organization with many employees and a fleet of cars has different insurance demands than a solopreneur with fewer employees or without a physical office. With that being said, there is no standard business insurance cost, but because insurance is a necessity in business, below is everything you need to know about it and how much it costs.
Factors affecting your business insurance cost
Like other business demands and priorities, insurance is essential for reasons including helping boost your business during financial adversities, which can wipe out your assets. Insurance also offers protection in the event customers, employees, or passersby experience harm at the hand of your business. At the same time, insurance is vital for landscaping businesses, construction firms, and other companies in helping fix expenses and costs of unpredictable circumstances such as theft and fire. Some of the priority factors affecting your business insurance cost include:
- Profession: Unlike other standard fields, the business industry involves different niches, and not all businesses carry the same amount of risks. Based on the type of business and niche your organization covers, you’ll know the risk it involves, and insurers use it to determine the eligibility of insurance coverage amount the business qualifies. Good examples of companies with higher risks include those dealing with fire rescue services, tree trimming, and cutting contractors. These businesses pay premium insurance fees considering their risks are primarily unpredictable and always unpredictably incur considerable expenses. Contrarily, suppose your business deals with services such as home-based financial advisory. In that case, insurance companies consider such business with lower risks, thus factoring the same when calculating the insurance cost for you.
- Number of workers: The rule of thumb is that insurance companies use the number of employees a business has regardless of its size and niche to determine its insurable risks. If your business has a considerable number of employees, expect to pay more for insurance because its potential for claims is also higher than those with fewer workers. The criterion used in calculating a business’s insurance fees based on its number of employees is that each additional worker increases exposure to accidents and other risks that results in claims. Therefore, based on the number of employees your business has, you’ll need to file for insurance coverage, including workers’ compensation, which is required by the law in different states. Doing this helps determine the accurate insurance amount coverage your business qualifies for and the insurance fees you pay without violating any insurance and business rights.
- The location of your business: Insurance rates also vary based on where your business is located and operating. The location of your business is essential, especially when filing for workers’ compensation coverage because insurance companies use locality to determine coverage level depending on business net worth from sales and revenues gained from the anticipated number of customers and profits per day. Location is also essential in determining commercial businesses’ insurance costs, especially those dealing with auto services. As such, if your business is located in higher cities and highly populated areas, expect to pay premium insurance fees compared to those in rural areas or sparsely populated places.
- The business size: Besides the number of business employees, size is also determined by productivity, including services and products sold daily. The number of products and services sold directly correlates to the cost of insurance fees you pay, considering insurance companies assume the more you sell, the more profits you make, and the higher the business net worth. Large businesses also pay more because their extensive production and service offering increase risks such as unpredictable accidents and more.
- The business payrolls and sales: Based on your business niche, the cost of workers’ compensation cover is always directly related to the size of its annual payroll. Payroll consideration to the cost of insurance fees you pay is determined by calculating the averages of monthly salaries workers take home. The higher your business’ average monthly salary range workers take, the more insurance costs you’ll pay. Additionally, insurance companies also use your business revenue to determine the risk of insurance liability it possesses. Using the business revenue estimation, the more customers your business has, the more chances of claims are expected, hence the more insurance fees you pay.
- Previous claims: Regardless of the size of your business and its niche, prior claims tell insurance companies you’ve been in business for some time and use such to determine your insurance coverage fees. Previous claims signal either your business is inherently risky or your organization is not taking and following proper ways of preventing risks. When this happens, you’ll pay more fees than others.