As a small business owner, you're always looking for ways to manage costs without sacrificing quality. Insurance is a necessary expense, but there are smart strategies to ensure you're getting the best coverage at the most competitive rates.
Finding ways to efficiently run your small business while managing operational costs is enough of a balancing act – even more so when you have to wonder how much you should be spending on necessities like small business insurance.
How do you know if you’re overpaying? What does the average small business spend on insurance? The short answer is, it depends. But as experts in small business insurance, we’ve rounded up some cost-saving tips so you can make the best decisions for you and your business.
How Much Does Small Business Insurance Cost?
First, to better understand how much money the average small business spends on insurance, it’s important to consider the biggest factors that impact cost.
Your Coverage Needs
The type and amount of coverage you need varies, but the first question you should be asking yourself when shopping for small business insurance is whether or not you’re legally and/or contractually required to carry certain policies. For instance, most states require small businesses to carry workers’ compensation insurance.
Additionally, there may be certain policies to consider based on the type of work you do. For example, if your business uses vehicles, you’ll need to think about commercial auto insurance.
Your Industry
The inherent risk in the work or nature of your business also determines cost. Generally speaking, the more risk your business poses, the more you’ll be paying for coverage.
Learn more about work comp in your industry.
Your Claim Potential
Another factor to consider is how much is at stake. This could be human (employee or customer injury), property (building, inventory) or something else (data breach, intellectual property).
Small Business Insurance Rates
Just like personal insurance, a commercial insurance policy protects businesses when something unplanned occurs. Policies are right-sized for the amount of exposure a business might have, and small business insurance rates reflect that.
Depending on the state(s) in which your business operates, insurance rates may be set by a governing body (e.g. workers’ compensation) or by the insurance carrier. Find out what ruling body sets workers’ compensation rates in your state.
It’s important to know that rates are just one piece of the underwriting process, which will ultimately result in your quoted premium.
How to Save on Commercial Insurance Policies
The right insurance agent is a partner in your business success, which should include getting the right coverage for the right price.
Talk to your agent about the below strategies, and see what advice they have on where you could save. Here are 15 ways to save money on your small business insurance:
1. Understand Your Coverage Needs
Start by assessing what insurance is legally required for your business and what's recommended for your industry. For example, most states mandate workers' compensation insurance. Don't overpay for unnecessary coverage, but also avoid the costly mistake of being un- or underinsured.
2. Shop Around
Get quotes from multiple insurance carriers. Each company has its own underwriting process, so prices can vary significantly. Consider working with an independent insurance agent who can shop around on your behalf and present you with the best options.
3. Bundle Your Policies
Look into a Business Owner's Policy (BOP), which typically combines general liability and commercial property insurance. Bundling these policies often results in a lower premium than purchasing them separately.
4. Opt for a Higher Deductible
Choosing a higher deductible can lower your annual premium. Just make sure you have enough cash flow to cover the higher out-of-pocket expense if you need to file a claim.
5. Pay Premiums Annually
Many insurers offer a discount if you pay your entire premium upfront rather than in monthly installments. Even if there's no discount, you might save on administrative fees associated with multiple payments.
6. Implement Safety Measures
Take proactive steps to reduce risks in your workplace. Create a comprehensive safety manual, conduct regular training, and install security systems. These measures can not only prevent accidents but may also qualify you for discounts on your insurance.
7. Classify Workers Correctly
For workers' compensation insurance, ensure your employees are classified accurately. Misclassification can lead to overpaying or, worse, penalties if you're audited. Work with an experienced agent to navigate the classification codes correctly.
8. Review and Update Annually
Your business evolves, and so should your insurance. Review your policies annually and update them to reflect changes in your business size, operations, or location. You might find opportunities to reduce coverage in some areas while increasing it in others.
9. Consider Industry-Specific Policies
Some industries have unique risks that are better covered by specialized policies. These tailored options might offer more comprehensive coverage at a better rate than a generic policy.
10. Maintain a Good Credit Score
Some insurers may consider your credit score when determining premiums. Maintaining good business credit can help you secure better rates.
11. Manage Your Claims
While you should always file a claim when necessary (especially for workers' compensation cases), frequent small claims can lead to higher premiums. Consider handling minor incidents out-of-pocket if it makes financial sense in the long run.
12. Ask About Discounts
Insurance companies offer various discounts that you might not be aware of. These could include claims-free discounts, discounts for certain safety features, or reduced rates for professional association memberships. Don't hesitate to ask your agent about all available discounts.
13. Invest in Risk Management
Implement strategies to minimize risks specific to your business. This could involve cybersecurity measures, regular equipment maintenance, or employee training programs. Demonstrating your commitment to risk management can lead to lower premiums.
14. Work with an Experienced Agent
An agent who specializes in small business insurance can be invaluable. They understand the nuances of different policies and can help you find the right balance between coverage and cost. Their expertise can save you money and ensure you're adequately protected.
15. Consider a Pay-As-You-Go Option for Workers' Comp
Some insurers offer pay-as-you-go workers' compensation policies. These base your premium on your actual payroll rather than estimates, which can help with cash flow and ensure you're not overpaying.
Remember, while cost is important, it shouldn't be the only factor in your insurance decisions. The cheapest policy isn't always the best if it leaves you vulnerable to significant risks. The goal is to find the sweet spot where you have adequate coverage at a fair price.
When shopping for insurance, read the fine print carefully. Understand what is and isn't covered, policy limits, and terms. If something isn't clear, ask your agent to explain it.
It's also worth considering the financial stability of the insurance company. Check ratings from independent agencies like A.M. Best or Standard & Poor's to ensure the insurer you choose is financially sound and likely to be able to pay claims if needed.
Lastly, don't overlook the importance of reviewing your coverage as your business grows and changes. What worked for your startup might not be sufficient as you expand. Regular check-ins with your insurance agent can help ensure your coverage evolves with your business.
By implementing these strategies, you can potentially save significant money on your small business insurance while maintaining the protection your business needs. Remember, insurance is an investment in your business's future. The right coverage at the right price gives you peace of mind and financial security, allowing you to focus on what you do best – running and growing your business.
Get Workers’ Compensation Insurance for Your Small Business
WorkCompOne was created to serve the needs of small businesses. Interested in work comp? You can get started on a free, no-obligation quote on your next coffee break.
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Editor's note: This post was originally published in January 2019 and has been updated for accuracy and comprehensiveness.