It is important that small businesses have adequate business insurance. Even independent consultants that have home-based businesses with no employees should have business insurance. Basically, if a person or business has an Employee Identification Number (EIN) they should also have insurance on that business.

Unfortunately, many small businesses go uninsured because they think the cost of insurance will be too high. However, one lawsuit against the business can wipe literally destroy the business leaving debt and financial obligations that becomes the responsibility of the business owner. The cost of insurance is never too high if it protects the business’s assets.

How Much Does Small Business Insurance Cost?

The first step in determining how much small business insurance will cost is to research exactly what type of business insurance is appropriate. Business insurance is not one-size-fits-all insurance. There are variables of the business that need to be considered.

• Business entity – a small business that is incorporated may require different insurance than a sole proprietor.
• Employee status – insurance needs, such as health insurance, may be necessary if the business employs workers versus an independent one-person contractor.
• Type of business – some small businesses, such as contractors, will fall into different risk pools than a business writer who has less risk factors in his or her daily work.

All of these factors will determine the exact cost of required business insurance.

Determining Small Business Insurance Needs

The best way to determine specifically what insurance policies are necessary to protect the small business is to consult with an insurance specialist. They can help the business owner foresee potential issues that could arise that would require protection or indemnification for the business owner. A business owner that tries to obtain insurance without the assistance of an insurance profession runs the risk of over-insuring the business and paying more money than necessary. Or, they could under-insure the business leaving it vulnerable to risk and loss.

Small business owners should review their insurance needs every couple of years. Business growth will impact insurance needs, as will business downturns. What was good for a nascent business may have changed as the business emerges and grows.

There are some business insurance policies that are important to most businesses, so begin the research with the basics.

• Liability insurance – a business liability insurance policy is critical for just about every type of business. This insurance will protect the business against personal injuries. It also protects against advertising claims injury. It can provide protections against damage from fire or other damages if the business owner leases a facility, and provides coverage for products, operations, medical expenses, and general liability from people getting hurt.
  
  In general, the cost of this insurance can range from $150 up to $1,000 for a sole proprietorship interested in $1,000,000 worth of coverage. Businesses with employees will generally pay from $250 up to $1,500 for the same levels of coverage.
  
  
• Excess liability insurance coverage – business owners may feel protected with liability insurance, but the excess liability insurance covers above the maximum allowable amount of the general liability insurance. This insurance will come in handy if the business is sued for amounts over a million dollars, which is not unheard of in today’s litigious society.
  
  
• Property insurance – if a small business is renting a facility, this insurance should be provided by the landlord. If the business is purchasing or owns the facility, property insurance provides against loss. It also covers furniture, equipment and anything else inside of the building. The policy should also cover any losses that may occur due to floods or other property damage.
  
  
• Worker’s compensation – if the small business has employees, this insurance is mandatory. It provides coverage for employees who may be injured while on the job. Employers can generally expect to pay between $150 to $3,000 annually per employee depending on the type and size of the business.
  
  
• Health insurance – while it is not required that an employer of a small business provide health insurance, it will make recruiting talented employees a lot easier. There are many small business health insurance plans available that are not overly expensive, and the employer can always have an employee cost-sharing health insurance plan.
  
  This is one area where meeting with a health insurance specialist is suggested since there are so many different types and levels of health insurance coverage available. The business owner can also research short and long-term disability policies, dental, vision, and other supplemental policies.
  
  
• Vehicle insurance – a business that has company cars, trucks or other types of vehicles should have appropriate insurance on those vehicles.
  
  
• Employment practices liability insurance – while this type of insurance protection is generally found in large businesses, the small business owner should not discount it. It provides protection against any type of discrimination claims or wrongful termination cases.
  
  

These are some basic types of insurance, and the small business owner should always check what other insurance policies are mandated by the state in which they are doing business.

When figuring out small business insurance cost, the business owner can help mitigate some expense by joining a professional group. Local Chambers of Commerce and other business industry professional groups often can offer discounts to members of the group on insurance costs. By joining a group the pool of insured persons can mean lower premiums on insurances such as health and life insurance. The larger the pool of people in the business group, the lower the insurance premiums will be. The annual cost of the professional group membership is offset by the savings on purchasing insurance.

The cost of insurance may seem financially burdensome on a small company, but the cost of one expensive lawsuit could put the company out of business. Try to bundle all the insurances together with one insurance company. This can often save the business owner money versus buying each insurance from different companies.

If uncertain about what business insurance is appropriate, the business owner should consult with an attorney as well as a business insurance professional to ensure all areas of risk are covered.