“I have a new business, what insurance should I buy and how much will it cost?” It’s one of the most common questions we get at Diversified, so we are putting all of the information in one helpful blog post.
What insurance is required by law?
Let’s start with what is required by law. Most states require businesses to obtain Workers Compensation insurance even for businesses with only one employee. Workers Compensation provides benefits to employees who suffer work-related injuries or illness. Benefits can include payment for medical care, rehabilitation, wages lost work time, etc. Outside of statutory requirements, you should consider insurance for things that you would not be able to pay for on your own. Below is a list and description of five lines of insurance that many new businesses purchase:
- General Liability – Protects against financial loss due to bodily injury, property damage, medical expenses, libel, slander, defending lawsuits, etc.
- Product Liability – Protects against financial loss due to a defective product that causes injury or bodily injury to a third party. This coverage is often included as a part of General Liability.
- Commercial Property – Protects your business against loss and/or damage of company property as a result of covered perils such as fire, wind and hailstorms, civil disobedience, vandalism, etc. Damage due to earthquake and flood are excluded but can be covered by endorsement or by purchasing a separate policy to cover these perils.
- Commercial Auto Liability – Protects against financial loss as a result of one of your employees causing bodily injury or property damage to a third party while driving their own or a company vehicle.
- Umbrella – Provides additional limits over General Liability, Product Liability, Commercial Auto Liability and Employers Liability (part of Workers Compensation).
Business Owners’ Policy Insurance
Many new businesses purchase a Business Owners’ Policy, or BOP. A BOP is an insurance package that rolls all of the coverages above into one bundle. Small businesses love the BOP because they have all of their coverages under one policy and it can save them money through bundling.
Specialty Insurance Coverage to Consider
Other specialty coverages that some new businesses should consider are:
- Professional Liability – Protects against financial loss due to errors, omissions, malpractice, etc. for the services offered by the insured.
- Cyber Liability – Protects against financial loss caused by data loss, computer fraud, cyber extortion, loss of transferred funds, etc.
How much will insurance coverage cost?
Once you have an idea of what coverages you deem essential for your new business the first question you will want answered is, how much will it cost? The short and simple (and unsatisfactory) answer is, it depends. There are many factors that an insurance company will consider when it determines your premium. Some of the key factors are:
- Industry and type of business – Insurance companies look at your probability of losses. Businesses that operate in hazardous conditions are more likely to experience a greater frequency or severity of losses and therefore will pay more for insurance than companies operating under more benign conditions
- Location of your business – Insurance varies by geographic region. For example, businesses based in California typically pay more than those based in Utah.
- Exposures – Depending on the line of insurance, insurance companies will use property values, gross sales, or payroll to help determine premiums. As you can imagine the higher the values the higher the premiums, in general.
According to claims data from one of Diversified’s insurance company partners, The Hartford, the average cost of a BOP for a small business is $1,172 if the building is not insured. (This is a common condition for most small businesses as they lease their office space.) The figure below shows the average cost of small business insurance for different industries based on data from The Hartford. Your premium can be higher or lower depending on the factors outlined above.
Find the right broker for your small business
At Diversified Insurance Group, we can help you navigate the insurance world and find the best solutions for your business. You can reach out for more information here.