All types of businesses, big or small, should consider getting business insurance to protect assets in case a disaster ensues. Doing so covers the costs associated with liability claims and property damage. Examples of incidents where business insurance may be helpful are lawsuits, employee injuries, and natural disasters.

Depending on the type of business insurance, the premiums and coverage may vary. To help you understand what factors influence business insurance premiums, here’s a guide we have prepared for you.

Location and Physical Environment

Your location and physical environment also determine your business insurance premiums. Some areas would pose a greater risk of property damage. For example, if your business is in a wildfire zone, fault line, or an area likely to be flooded, the insurance will likely be higher.

Places with high crime rates are also considered high-hazard areas, so expect to be charged higher premiums. Insurance providers may exclude provisions if you have a high level of risk, the loss or damage is avoidable, or if it’s impossible to price the risk, like if your business is in a war zone with incalculable damage or loss. In such cases, you may have to apply for a direct loan and other loan products to cover the losses.

Industry and Nature of Business

Each business belongs to a specific industry, and if yours is operated through heavy machinery, it involves dealing with hazardous substances, or working in public, you’re likely to be viewed as a business with higher risk. Consequently, the insurance premiums for your business will likely be higher than the average to supplement the funds granted by the insurance.

For example, if you operate security services, insurers will see your business with a high level of risk since you will likely cause injuries to third parties at work.

Size and Revenue of the Business

The size of your business also influences the cost of your insurance. The business size is decided based on the revenue and the number of employees you have. Of course, if your business has high revenue and a large workforce, you’re likely to be charged with a higher cost of insurance premiums since the amount of risk is higher.

The two types of insurance likely to be affected by the size and revenue of the business are Professional Liability Insurance and General Liability Insurance.

Claim History and Risk Profile

Your insurance claims are also significant factors in determining future insurance rates. When you apply for insurance, insurers will do a background check and examine your previous claims. If there is an open claim against your business, you can still avail of insurance but at a higher rate.

The rule of thumb is simple: insurers will view your business as a high-risk client if your business has a high-claim history, so the insurance premiums will likely be higher than you expect.

Age of Your Business

Experience is a big factor in the insurer’s decision to approve your insurance application and its cost as well. If you have greater experience in running your business, you will be likely viewed as a client with lower risk since insurers will expect that you know how to navigate the market, dodge potential blunders, and manage flaws in your operations. 

On the other side, if you are a startup trying to test the waters in the industry, you will likely get a higher cost of insurance premiums.

Contracts

Insurers will also consider your previous contracts with clients. Say you have 50 existing contracts with your clients; you will likely be charged a higher cost of premiums compared to those with only 10 existing contracts.

Your insurer will ask you to submit your work history and a list of contracts you have sealed. This extensive business background check will reveal if you have unfulfilled past commitments and look at them before deciding on your insurance premiums.

Coverage and Policy Details

What you’re getting covered for and the coverage level will affect the cost of your insurance premiums. Here are the types of business insurance you should know:

• General Liability Insurance

This type of policy protects businesses from legal hassles involving claims of negligence, injuries, and accidents. With General Liability Insurance, you will be protected from payments caused by medical expenses, property damage, libel, slander, and settlement bonds or judgments during an appeal procedure.

• Product Liability Insurance

Product Liability Insurance protects businesses against financial consequences caused by defective products causing injuries or any bodily harm.

• Professional Liability Insurance

If you offer services like legal or medical services, professional liability insurance may protect you from malpractice, errors, and negligence during business conduct.

• Commercial Property Insurance

Commercial Property Insurance may protect your finances from loss and damage of property. It includes unfortunate events such as floods, fires, hailstorms, vandalism, and civil disobedience, among many others.

• Home-based Business Insurance

Home-based Business Insurance may help you cover normal business risks like property damage if you’re operating a business from home. You can supplement this with other types of insurance, like professional liability if you’re providing services from your home.

Conclusion

Managing a business includes specific risks that may impact your finances. To help you manage these risks, you must select a suitable business insurance tailored to your needs. Consider the factors influencing insurance costs and decide which one will serve your interest best.