Business insurance can help protect your company from various risks, such as car crashes, natural disasters and lawsuits. Determining how much business insurance costs depends on factors like your industry, location, risk level and coverage amounts.
Here are the most common types of small business insurance and their average costs to help you pick the best option for your business.
Key takeaways
- The average cost of insurance for small businesses is $87 a month.
- Most business owners with employees will need general liability, workers’ compensation, unemployment and disability insurance, though you may want additional coverage, depending on the type of business you own
- Gather quotes from multiple insurance companies to find the best rate for your needs.
Cost of different business insurances
There are multiple options when it comes to shopping around for small business insurance. Here’s what you can expect to pay for the most common types of policies.
- Single coverage: $703
- Family coverage: $1,997
- Federal: 0.6% to 6% of the first $7,000 of employee taxable
- State: tax rates vary
Understanding the different small business insurance options
Not sure what type of business insurance you need? Here are some common types and what they cover.
Business owner’s policy (BOP)
A business owner’s policy (BOP) combines commercial property insurance and general liability policies into one package, typically at a discounted price. While you’re generally not required to carry a BOP, professional liability insurance may be required for specific services. Additionally, adding property coverage could be a smart move if you want to protect your business property.
Average costs can vary based on your type of industry and how much coverage you want. In general, you can expect to pay less than $80 a month for up to $1 million per occurrence, with a $2 million aggregate limit for all claims. The average deductible is typically $500.
Factors that could affect the cost of a business owner’s policy:
- Commercial property value: If your commercial property value is on the higher end, you will likely pay a higher premium.
- Business location: Being in high-risk areas or having a lot of foot traffic could increase your costs.
- Industry and risks: Your type of work can determine your overall liability, such as restaurants and retail stores typically being charged higher premiums than photographers and accountants.
- Number of employees: The more W-2 employees involved with your company increases your overall risk for accidents or client lawsuits.
- Years in business:Startup business insurance costs can run higher since your business may be considered riskier, especially if you have expensive overhead.
- Your business’s claims history: If you have a history of multiple claims in the past, you may end up paying a higher premium.
- Coverage needs: You may want to include add-ons to your policy, which will increase your premium.
Tip: Consider working with an agent
If you’re not sure how much coverage you need, a licensed insurance agent can help you figure out what plan will work best.
Health insurance
Businesses with 50 or more full-time employees are generally required to provide health care benefits. Note that if your company’s health care plan doesn’t meet the Affordable Care Act’s minimum requirements, you may be subject to a tax penalty known as the employer shared responsibility payment (ESRP).
Premiums vary based on individual versus family coverage, as well as coverage limits, deductibles and more. Single coverage can cost a company an average of $703 a month, while family coverage is around $1,997 a month. However, if your company offers a high-deductible health plan with a savings option (HDHP/SO), average monthly costs could drop to $547 (individuals) or $1,420 (families).
Factors that could affect the cost of a health insurance policy:
- Risk profile: Insurers typically look at your employees’ overall risk factors when calculating premiums, considering factors like age demographics, industry risks and more.
- Location: Different states have different health care regulations and requirements, as well as average costs for treatment.
- Carrier and network type: Plans that offer a wider range of in-network options typically charge higher premiums.
- Plan design: Employers will generally pay more for plans that provide lower out-of-pocket expenses.
- Claims history: Having a high number of claims could increase your renewal rates, although you can help mitigate this by offering a preventive wellness program.
Workers’ compensation
Workers’ compensation insurance is required in almost every state if you have part- or full-time employees. There are a few exceptions to this rule, such as if you have less than three employees in Georgia. Make sure to research your state’s specific rules on workers’ comp to avoid any penalties.
You can typically expect to pay less than $60 a month for a workers’ compensation policy for your company. Note that there are no coverage limits for workers’ comp; instead, it covers your part- and full-time employees’ medical expenses, disability benefits and a percentage of their wages.
Factors that could affect the cost of a workers’ compensation policy:
- Type of work: Insurance companies typically refer to the National Council on Compensation Insurance (NCCI) class code system to calculate your industry’s risk level — such as whether there’s a high risk of falls.
- Annual payroll: Since injured employees can collect partial wages, a company’s premium will increase based on your overall payroll expenses.
- Number of employees: Having more employees can increase the risk of on-the-job injuries and lawsuits.
- Claims history: Each year, your insurance company will compare your claims history with other similar companies. If you filed more claims than usual, you may need to pay higher rates.
- State laws and regulations: You must follow your state’s specific rules, with Texas being the only state where workers’ comp is optional.
Disability insurance
Only a handful of states require you to carry disability insurance: California, Hawaii, New Jersey, New York and Rhode Island. However, the Insurance Information Institute found that about half of mid- to large-sized companies choose to offer this benefit to their workers.
Employers can expect to pay between 1% to 3% of eligible employee annual salaries for disability coverage. Short-term disability insurance typically provides coverage for 13 to 26 weeks, while long-term disability plans can range from five to 20 years, or longer. Policies generally replace between 40% to 70% of an employee’s salary.
Factors that could affect the cost of a disability insurance policy:
- Industry: Prices fluctuate based on the type of work your employees do, with office workers generally getting the lowest rates.
- Demographics: The size of your business, along with your employees’ age ranges, genders, income and health status, may all affect the cost of your policy.
- Location: If your business is located in a high-claims area, your policy’s price might increase.
- Coverage amount: Offering a higher benefit amount for your employees can result in a higher premium.
- Coverage period: Policy terms can range from a few months until retirement range, with the longer terms typically costing more.
- Elimination period: Most insurance companies have a waiting period before an employee can start collecting benefits, which can range from a few days to two years. While selecting a longer period can cut costs on your end, it could pose challenges for employees needing this benefit.
- Optional riders: You have the option to add riders to the policy, such as cost-of-living adjustment, catastrophic benefits, student loan protection, retirement protection and more.
Unemployment insurance
All states require employers to contribute toward unemployment insurance through state and federal payroll taxes, with Alaska, New Jersey and Philadelphia also requiring an employee contribution. This benefit is available to all eligible part- and full-time employees who lose their job due to no fault of their own.
While state unemployment taxes vary based on your business’s location, the standard federal rate is 6% on an employee’s first $7,000 wages (capped at $420 per employee, per year). Note that companies could reduce this rate to as low as 0.6% with a tax credit by making on-time state unemployment tax payments.
Although unemployment tax rates are determined at the federal and state level, here are some ways you could reduce expenses:
- Workforce planning: Companies can implement strategies to help ensure they operate within their means, such as hiring an appropriate number of workers to reduce the need for layoffs.
- Alternatives to layoffs: Instead of trimming staff, your company could temporarily pause some employee perks and fringe benefits, reduce work hours, pause bonuses, offer early retirement and other such methods to help your bottom line.
- Voluntary payments: In some states, employers can make a one-time payment into an unemployment-insurance trust fund as opposed to doing tax rate calculations.
- Tax credit: As mentioned above, you may be eligible for a tax credit if you make timely payments for your state unemployment taxes.
General liability insurance
Although most states don’t require companies to carry general liability insurance, having it can protect your business in case a client or customer gets injured on your property. Additionally, certain professions may be required to have general liability insurance, such as general contractors and healthcare providers.
Business owners can expect to pay between $30 to $60 a month for a general liability policy, according to Insureon. A standard policy includes a $1 million per-occurrence limit, with a $2 million aggregate limit per year.
Factors that could affect the cost of a general liability insurance policy:
- Business location: You may pay a higher premium if you live in a more populated area or in a region that has a higher risk of natural disasters.
- Risk level: Some industries have a higher liability risk, such as construction, real estate, healthcare, retail and hospitality.
- Years in business: Startups may pay higher premiums due to lack of experience in the field.
- Coverage amounts: You can customize your plan to fit your budget, such as choosing a lower coverage amount.
- Claims history: The cleaner your track record, the higher your chances of receiving a low rate.
Do I need business insurance if I have an LLC?
While a limited liability company (LLC) can protect your personal assets from lawsuits, it’s not 100% foolproof. Getting business insurance can help fill any gaps in coverage, offering protection for both personal and business assets.
Furthermore, you may be required to purchase additional insurance policies based on state laws or if you have employees.
In general, business insurance for LLCs costs the same as policies for other types of business structures, such as corporations.
Business property insurance / hazard insurance
Commercial property insurance is typically optional, although some landlords or lenders may require it to protect their investment. Even if it’s not required, the cost is generally worth it to protect your business’s physical assets from the unexpected, such as certain natural disasters, fire, theft and vandalism.
Business hazard insurance costs typically run around $100 or less per month, according to Insureon. The coverage amounts vary based on your property’s value, with deductibles ranging from $1,000 to $25,000.
Factors that could affect the cost of a commercial property insurance policy:
- Business size: A large factory will likely pay more than a one-room business.
- Location: If your business is located in an area prone to natural disasters, you can expect higher premiums.
- Age of building: Older buildings often cost more to insure since there are more risks, such as old electrical wiring causing a fire.
- Equipment: Having hard-to-replace equipment could affect your insurance rates.
- Safety and security: Insurance companies may consider certain risk factors, such as the crime rate in your area, or if your business handles hazardous materials.
- Fire protection: You could potentially reduce costs by installing sprinkler systems inside your building.
- Property valuation method: “Replacement value” tends to cost more, helping you get brand-new replacements for damaged equipment and property. In comparison, selecting “actual cash value” allows you to receive an item’s depreciated value while saving more in premium costs.
Tip: You can potentially reduce your monthly bill by bundling policies
For example, the average price for general liability is $42 a month, with commercial property insurance generally costing $67 a month. However, a business owner’s policy (BOP) can combine the two policies, with an estimated average cost of $57 a month.
Business interruption insurance
Although business interruption policy isn’t legally required, it can help cover essential operating expenses if your business needs to temporarily close for a covered reason. In addition to replacing lost revenue, it can cover mortgage and rent payments, business loans, payroll, relocation expenses, taxes and more.
Some insurance companies don’t offer business interruption insurance as a stand-alone policy — you must add it to a bundled policy. If you want to purchase it separately, average costs can range from $50 to $150 per month. In general, business interruption insurance is available to businesses with 100 or less employees and annual revenues up to $5 million.
Factors that could affect the cost of a business interruption insurance policy:
- Industry: If you work in a field where temporarily shutting down could result in a significant financial loss, your premium will likely increase.
- Location: Your company’s geographical location could play a critical role in determining your rates, such as if there are frequent storms or other natural disasters.
- Coverage amount: As with other types of business insurance, the higher the coverage amount, the more you’ll end up paying for the policy.
- Number of employees: Since some policies cover payroll, you may end up paying a higher premium if you have more employees to cover.
Cyber liability insurance
Small businesses typically pay $8,000 or more a year to deal with the effects of cyberattacks, according to international specialist insurer, Hiscox. While it’s not legally required, having a cyber liability policy can protect your business from cyber criminals and help you follow state regulations during a data breach.
While some insurers offer policies as low as $8.25 a month for up to $100,000 in coverage, the average cost in 2024 was $145 a month for $1 million in coverage. The average deductible is $2,500.
Factors that could affect the cost of a cyber liability insurance policy:
- Services: Some services could result in higher premiums, such as an IT consultant helping install database software for customers that then gets hacked.
- Sensitive information: The more sensitive data your business stores, the more you can expect to pay. Examples include customers’ personal information, Social Security numbers, credit card details and medical records.
- Number of employees: Limiting how many employees can access sensitive data can help keep your insurance costs down.
- Claims history: Like other policies, having a history of claims could result in premium increases.
- Policy details: You can expect to pay more for higher coverage amounts and lower deductibles.
Commercial auto insurance
Almost every state requires business vehicles to carry commercial auto insurance — with New Hampshire being the exception. Businesses that don’t have commercial auto insurance will need to personally pay for accident-related expenses, such as property damage, medical expenses and legal fees.
You’ll need to follow your state’s minimum coverage limits when purchasing a policy. For example, North Carolina minimum requirements are $30,000 for bodily injury (per person), $60,000 for bodily injury (per accident) and $25,000 for property damage. On average, commercial auto insurance costs $147 per month, although you may pay more or less based on your state and coverage limits.
Factors that could affect the cost of a commercial auto insurance policy:
- Coverage limits: Having higher coverage can offer more protection in case of an accident, but it’ll cost you more in premiums.
- Vehicle types: The size, make, model and year of your fleet vehicles will influence insurance costs, such as having a line of trucks versus sedans.
- Number of vehicles: The more vehicles you add to the fleet, the more you can expect to pay — although some insurance companies offer discounts for multiple vehicles under one policy.
- Employee records: Prioritizing safe driving practices among employees can help you cut insurance expenses.
Other small business insurance policies
After picking your essential insurance plans, you can consider a range of add-on policies to fit your business’s specific needs.
- Home-based business insurance. If you run a business out of your home, this type of policy can cover property damage, lost business income, legal fees and data breaches. Note that your homeowner’s insurance policy doesn’t cover business activities.
- Inland marine insurance. Businesses that transport (on land) materials, products and equipment, or store property owned by someone else, can benefit from this type of policy.
- Errors and omissions (E&O) insurance. If you provide a service to customers, carrying an E&O policy (also called professional liability insurance) would help protect you from claims involving negligence, service errors, misrepresentations, inaccurate advice and more.
- Crop insurance. Farmers can purchase this to protect their crops against natural disasters or revenue loss due to price declines.
- Wildfire insurance. If your business is located in a high-risk area, wildfire insurance could help offer extra peace of mind.
- Retail insurance. If you open a retail business, a bundled policy could help protect against property damage, theft, employee injuries, customer mishaps and more. Retail business insurance costs are typically similar to what you’d pay for a business owners’ policy (BOP).
- Product liability insurance. Businesses that manufacture products may want an extra layer of protection in case customers get harmed or injured by misuse or a faulty product.
Tip: Reduce your taxes by claiming insurance costs
Did you know you can claim business insurance premiums as a qualified business tax deduction if they are necessary for your industry or trade? You can even claim health insurance premiums for yourself and your family if you’re self-employed or a sole proprietor.
Talk to an accountant or tax professional for guidance for claiming these deductions.
5 ways to save on business insurance
Business insurance policies vary by state, insurer, your industry and more. While finding an affordable price is important, make sure you don’t compromise on quality — you want a policy that will help keep your business afloat if and when the unexpected happens.
- Compare rates. Gathering quotes from several insurance companies can help you pick the most affordable option for your business needs.
- Bundle. Ask your insurance company how much you could save by bundling policies together, such as combining general liability and commercial property insituance into a business owners’ policy (BOP).
- Pay up front. Insurance companies often offer a discount when you pay your premium annually versus monthly.
- Raise your deductible. You could potentially save around 5% to 10% by picking a higher deductible for your policy — just make sure you can still afford the deductible if you need to file a claim.
- Manage company risks. Implementing a risk management plan can ensure your business operates as safely as possible, helping minimize claims and keep premium costs down.
