Business Insurance Cost: What Can Affect It

You finally get to start that business that you have been planning to set up. And all this has taken up almost all your savings. So, how do you protect your business against loss? While it may not be obvious to all, a business insurance policy will come in handy in the event of loss due to issues such as property damage, legal liability and theft, just to mention a few. 

Before we get to the factors that will determine the cost of business insurance, let’s see why it’s important to have business insurance in place. 

• Business insurance reduces the uncertainty of business losses

We live in an uncertain world. And we cannot control everything. In business, a single occurrence such as fire or theft can reduce a 10-year-old business to ashes. And if you calculate the cost of starting over, you will find that an insurance policy not only averts the costs of replacing or starting over a business but also gives business owners some peace of mind. 

• Increase business efficiency

Insurance is that friend you need when you want to focus on building your business. A simple insurance policy ensures you dedicate more time to your business not forgetting the guarantee that comes with compensation if the insured risk occurs. 

• Business continuity

Some losses can cripple business operations. For instance, a bakery that is affected by a fire can be crippled if it didn’t have fire insurance policy in place. 

• Enhancement of credit

If you need some credit to sort your equipment or expand your business, having an insurance policy enhances your credit eligibility. You can even use your insurance policy as a pledge for a collateral. 

• Employee welfare

The welfare of an employee is the responsibility of an employer as long as an employee serves a business. As such, an employer is liable for ensuring the workers are safeguarded against accidents that can occur in the line of duty. 

Given the importance of business insurance, how much should a business policy cost?

The cost of business insurance is not static. As such, it is determined on an individual basis where various factors are considered. Here are factors that will affect the cost of insurance for your business. 

1. The type of business

This is one of the biggest factors that affect the cost of your business insurance. Some businesses are high risk while others are low risk, which inherently affects the cost of the business insurance policy. The higher the risk, the higher the premiums you will pay. For instance, an expensive jewelry seller will pay higher premium rates for theft business insurance than a business that sells bulky furniture. This is because it is easier for a person to steal all the jewelry in the store than bulky materials. Also, when considering an injury insurance policy, a construction business will pay higher premiums than a legal consulting firm will pay for the same. 2. 

2. The type of insurance you pick

Some insurance policies are mandatory in some countries and states. However, others are optional. If you want to protect your business against more risks, purchasing several insurance policies would be a wise decision. However, you will pay more premiums for the additional policies. 

The types of business insurance policies are limitless. Among the most popular ones include;

• Cyber risk insurance

• Worker’s compensation insurance

• E&O insurance

• Food Spoilage

• Commercial auto insurance

• Theft insurance

• Fire insurance

• Employee liability insurance

3. Number of claims filed

Business insurance claims can either raise or lower the cost of your insurance cost. This is because the claims reported reflecting the risks that the insurer is exposed to by insuring your business. If your business has filed more claims in the past, the cost of the insurance will be higher. 

The role of business insurance is to safeguard a business from unforeseen loss. However, higher insurance costs can cripple a business. To counter this, you can opt to pay a higher deductible amount. This enables you to pay lower premiums. However, you ought to ensure that you can afford the deductible amount during a claim. You can also reduce your claims by putting up measures that protect your business from loss. For example, if you are insuring against theft, having the area covered with surveillance may reduce your premiums. 

4. The level of business activity

The cost of business insurance increases as your business grows. This is because the business is exposed to more risks. For instance, the expansion of an eatery to a medium-sized hotel means that there is more kitchen equipment to be insured, more employees and even more legal issues to look at. If the hotel had a fire insurance policy, the cost would go up. This is because the insurer will need to replace more equipment if a fire ravages the hotel. Also, the more the number of employees, the more the claims in the event of an accident.   

5. The location of your business

Insurance requirements in different states and countries differ, hence affecting the cost of your business insurance. You will find that the insurance cost is cheaper in some places than in others. Also, if your business is located in an area that exposes it to more risks such as crime and catastrophic occurrences, you are likely to pay more than a business that is not exposed to this. 

A business located in a new building may fetch you lower premiums. This is because older buildings are more susceptible to risks than new ones. 

To lower your business insurance costs, opt for a place that is more insurance-friendly. Also, if your business is not dependent on a specific place, locating it in a place that is less susceptible to risks such as theft and other catastrophic events lowers your premiums. 

To find out more about office insurance, and all the specifics associated with it, check out this article. 

6. The level of expertise

This especially affects new businesses. You may notice that your provider may need details on how long you have been in a specific industry. People who have not perfected a skill are exposed to more risks as opposed to experienced persons. As such, the cost of business insurance is higher for people who are less experienced. This also applies to employees. Hiring inexperienced employees may expose you to more business risks, hence raising the cost of your business insurance.  

Planning for a business insurance policy as well as remitting the premiums may not be fun. However, the risks you expose your business to by not undertaking the necessary insurance coverage may cost you more in the future.