How Much Does Small-Business Insurance Cost?

Small-business insurance provides financial protection from accidents, losses, and liability for small-business owners. The average small- business insurance cost is $81 per month.
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Small-Business Insurance Cost

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  • National Average: $81 per month

After spending a great deal of time creating a business plan and putting a new business idea into motion, many small-business owners will want to do everything they can to protect their business. These efforts might include instituting safety policies for employees or making sure the business maintains accurate financial records. When it comes to financial protection, there are few tools as important as small-business insurance. The best small-business insurance (such as Thimble and NEXT Insurance) can offer a wide variety of coverage options to protect business assets and finances, ranging from general liability and workers’ compensation coverage to commercial property and business income insurance.

Though they will likely see the value of insurance and understand its necessity, small-business owners may be concerned about the cost of commercial insurance and what it will add to their expenses. The good news for small-business owners is that the average small-business insurance cost is around $81 per month, making it an affordable layer of protection for many businesses.

However, the exact cost of insurance for a business depends on many factors, including the type of business and its location, the number of employees on staff, and what kind of coverage a small-business owner needs. Knowing what types of insurance are available and understanding their specific needs can help small-business owners find the right coverage at the right price.

Factors in Calculating Small-Business Insurance Costs

Small-Business Insurance Cost

How much does insurance cost for a small business? The answer can vary greatly, even for the same types of businesses that operate at a similar scale and in the same general vicinity. Small-business insurance companies use several factors to help determine how much to charge a business owner for coverage. These can include structure of the business, such as the number of employees it has and type of work it handles, and also the specific insurance needs and the number of claims filed by the business owner in the past.

Coverage Type

The type of insurance coverage a small business needs can affect how much the owner will pay for insurance. Types of coverage for small-business owners include general liability insurance, business property insurance, and commercial auto insurance.

The exact types of coverage a small business needs will depend on the business itself. A business that requires employees to travel to clients, such as a cleaning business, for example, will likely need a commercial auto insurance policy. When business owners are getting quotes and estimating the cost of cleaning-business insurance, they may want to be sure to add commercial auto coverage to their quote so they accurately price out their insurance needs. On the other hand, a business that doesn’t require employees to travel to clients, such as a restaurant or a self-employed accountant specializing in tax preparation, may not need commercial car insurance. In addition, some small-business owners—landscapers or general contractors, for instance—may need tools and equipment coverage in the event their equipment is damaged by a covered loss or stolen from a business-owned property or while on a jobsite. Other professions such as accountants and consultants may not require this kind of coverage with their small-business insurance policy.

Coverage Amount

The coverage amount of an insurance policy—also known as the coverage limit—is the maximum amount of money an insurance company will pay for a covered loss. Insurance companies often set separate coverage limits on a per-occurrence and in-aggregate basis. This means payouts on individual claims will be capped at a certain amount, while the total payout amount for all claims filed in a particular term—usually a year, but could be longer in some cases—will be capped at a much higher dollar figure.

Just as small-business owners can choose the type of coverage they need, they can also adjust the amount of coverage a small-business insurance policy provides. This flexibility makes it easy for owners to customize their policies to meet their small-business insurance needs and fit their budgets. Choosing higher coverage limits, for example, often increases the cost of the business insurance policy, but it also provides greater financial protection in the event of a covered loss.

Type of Business

The profession of a business owner—or the industry of a business—plays a part in the cost of small-business insurance. In general, some professions or industries are seen as higher risk than others. Those business owners working in higher-risk industries are likely to pay more for business insurance than another business owner in a lower-risk industry.

An electrician, for example, may end up paying more for similar coverage compared with a handyman who doesn’t do any work with electrical systems. An insurance company may consider the electrician to be at a much higher risk of an accident than the handyman because of the nature of working with electrical lines. As such, handyman insurance costs may be lower for professionals who do not take on more dangerous work. This also extends to the type of work that businesses within the same industry take on. For instance, a lawn care business that provides tree-trimming or tree-removal services will likely pay more for an insurance policy compared with a lawn care business that does not offer those types of services.

Geographic Location

Similar to many other types of insurance, the price of small-business insurance can rise or fall depending on the location of the policyholder. Some of this cost discrepancy is due to the insurance company’s data on risks in certain areas. An insurance company might have years of data pointing to a higher number of lawn care business accidents in a certain region, for example.

In addition to an insurance company’s pricing model, the state in which a business is located can cause price fluctuations. Commercial insurance requirements can vary greatly among states, which can cause prices to go up or down depending on a state’s regulations. State laws play an especially large role in the price of workers’ compensation insurance, so the cost of insurance for small-business owners may vary quite a bit from one state to another.

Claims History

Two small businesses in the same area and industry might receive vastly different prices on small-business insurance due to their claims history. Insurance companies will likely consider someone who has filed multiple claims on their business insurance in the past to be a higher risk than someone who has never filed a claim. For example, if a handyman filed more than one liability claim for damaging customers’ property, the insurance company may come to the conclusion that the handyman doesn’t follow proper protocols to avoid such accidents. As such, it may determine that higher insurance rates are necessary to offset the risk of a similar claim being filed in the future.

Number of Employees

The number of employees working for a small business can greatly affect the cost of business insurance, especially as it relates to workers’ compensation coverage. Employee head count affects payroll, which impacts the cost of workers’ compensation insurance. Businesses with more employees need higher coverage limits on workers’ compensation insurance, leading to higher premiums on their insurance policies.

The number of employees on staff could also impact liability insurance costs as more employees could represent more risk for the insurance company. For a sole proprietorship with no employees and only one person, there’s less risk of accidents and injuries on the job. As a business adds more workers, each person potentially increases the risk of someone being hurt in an accident or causing damage to property, so the business owner could see their premiums go up as their staff grows.

Actual Cash Value vs. Replacement Cost Coverage

Insurance companies use two methods to determine how much to pay out in claims for damaged items—actual cash value and replacement cost coverage. Actual cash value refers to the current, depreciated value of an item at the time the policyholder files a claim. Conversely, replacement cost coverage takes into account how much it would cost to replace the damaged or lost item with a new item at today’s prices.

Generally, a policy that has actual cash value coverage lowers the cost of small-business insurance because payouts will typically be smaller for damaged or stolen equipment. The insurance company will account for depreciation when determining the value of an item that’s stolen or damaged by a covered loss and pay a claim based on that calculated value (less the deductible). A policy with replacement cost coverage, on the other hand, may increase insurance costs because depreciation isn’t a factor, which can lead to larger claim payouts for the policyholder. For many small-business owners, replacement cost coverage may be worth the extra expense, as it could allow a business to replace damaged tools, equipment, or other business property with less out-of-pocket expense.

Small-Business Insurance Cost

Types of Small-Business Insurance

Before a business owner goes out and gets small-business insurance, it’s recommended that they understand the various types of coverage available so they purchase the right amount of coverage to meet their needs. Different coverage types can affect the price of insurance for a small business. However, some insurance companies may give business owners a discount if they purchase all of their necessary policies through one carrier, which is known as bundling.

General Liability Insurance

A general liability insurance policy is often considered essential coverage for any small business. General liability coverage helps protect the business and the business owner from a wide variety of liability concerns, including property damage to others caused by employees, client injuries on a worksite, and claims of reputational damage from competitors, among other scenarios. Small-business liability insurance generally includes coverage for property damage and bodily injury to third parties as well as the cost of legal defense. For instance, employees working for a lawn care business may leave tools in a client’s yard as they go about their work. If the client trips over a rake and breaks their ankle, the lawn care business’s general liability policy could help pay for the client’s medical bills as well as the business owner’s legal fees if they are sued.

The cost of liability insurance for small-business owners often varies based on many factors, including the number of clients a business has and also the services it provides. The more clients a business serves, the higher the likelihood of a lawsuit for any number of reasons. Business owners could face higher insurance costs as they add more clients. Likewise, business owners in more hazardous industries, such as electricians or roofers, may have higher liability rates than those in lower-risk industries since they may be more likely to experience an accident while on the job.

Workers’ Compensation Insurance

A workers’ compensation insurance policy protects business owners and employees from the cost of injuries if an employee is hurt on the job. After a workplace injury, a company’s workers’ compensation policy helps cover the medical bills and lost wages of the injured employee. By law, many states require businesses with employees to carry workers’ compensation insurance.

One of the biggest factors in determining the cost of workers’ compensation insurance is the nature of the work that the business conducts. Construction-related businesses, for example, are often seen as a higher risk to insure when it comes to workers’ compensation coverage. Workers in that industry often use power tools, heavy equipment, or dangerous materials on the job, which increases the risk of an accident. Because of the higher potential for employees to face serious injuries, business owners in this industry usually have to pay higher workers’ compensation premiums.

Commercial Property Insurance

Also known as business property insurance, commercial property insurance helps protect the physical location of a small business—including the contents of the building. Hazard insurance for small-business owners helps repair or replace business property after a covered loss. Events that are commonly covered by a commercial property insurance policy include theft, fire, and certain types of water damage, such as an unexpected burst pipe.

Small-business owners generally qualify for commercial property insurance regardless of whether they own the building, lease a commercial space, or run their business from home. However, the location and type of building will likely affect the cost of business property insurance. For example, an older warehouse located in an area that’s at risk for wildfires may cost more to insure than a new construction located far away from areas prone to natural disasters.

Additionally, the type of equipment and other business property a business owns may have an effect on insurance rates. A policy covering a great deal of expensive construction equipment will likely cost more than a policy covering a small home office.

Commercial Auto Insurance

Small businesses that transport materials, drive to client locations, or otherwise require employees to use company-owned vehicles to support the business usually require commercial car insurance. Coverage from a commercial auto policy is very similar to that of personal car insurance policies; coverage options might include liability coverage, comprehensive coverage, and collision insurance. The cost of commercial auto insurance depends on several factors, including:

  • How often and where the car is driven: Vehicles that are driven more frequently or travel greater distances are more likely to be involved in an accident.
  • The claims and driving history of drivers: Employees who have filed car insurance claims for accidents involving their personal vehicles may cost more to insure on a commercial auto policy.
  • Age and experience of the insured drivers: Younger drivers or those who have only had a driver’s license for a short time may be considered at higher risk for an accident.
  • Type of vehicle: The make, model, and value of a company-owned vehicle can impact the cost of commercial auto coverage, as a more expensive vehicle will likely cost more to insure.
  • What type of cargo, equipment, or products are transported in the vehicle: Businesses that need to transport expensive equipment or hazardous materials for their work may need to pay higher premiums on their commercial auto coverage.

Business owners can get a small-business insurance quote to get an idea of how much they’ll pay for commercial auto coverage.

Professional Liability Insurance

A sometimes-overlooked risk of running a small business is the potential expense of a professional mistake or error. If a mistake causes a client harm, the client might sue the business owner for damages. For example, a plumber might install pipes too close to a home’s outside wall. When winter comes around and the temperature drops, those pipes wind up freezing, bursting, and causing major water damage inside the home. The client then sues the plumber to cover those damages. With a professional liability insurance policy, also called an errors and omissions (E&O) policy, the plumber could file a claim to help cover legal fees and other damages.

Pricing for professional liability coverage can vary widely, even within an individual industry. One of the biggest factors in professional liability coverage cost is a business’s risk exposure. A business that deals with high-value assets—a luxury real estate business, for instance—or one that deals with tax records or financial information may be at higher risk for professional liability claims since the fallout from an error or mistake on the business’s end could be very damaging to clients.

Business Income Insurance

Business income insurance, or business interruption insurance, is a type of coverage that protects business owners if they have to temporarily stop working due to a covered event. A business income policy can help cover regular operating costs, such as lease payments and employee payroll, if an accident or covered loss closes the business. This coverage can also help replace any lost revenue resulting from a covered loss. For example, if a flooring contractor’s warehouse and office building are damaged in a fire, the contractor’s business interruption insurance could help cover the cost of keeping the business running while the owner repairs the building and replaces damaged materials and equipment.

The cost of business income insurance depends on the revenue of the business, the risk level of the industry, and how much the company’s property is worth. A high-end restaurant, for example, may pay more for business income insurance because there’s a higher risk for fire compared with other industries and because a high-end restaurant likely brings in more revenue and is more likely to have expensive furniture and decor compared with other restaurants.

Business Owner’s Policy (BOP)

A business owner’s policy (BOP) is a prepackaged policy that combines general liability, commercial property, and business interruption insurance coverage into one policy. This combined insurance policy lets small-business owners obtain coverage for liability, damage to business equipment, and interruptions to business operations.

The biggest cost factors for a BOP are the coverage limits a small-business owner chooses for their policy. Higher limits generally mean the business owner will pay more for coverage. In addition, the various factors that impact the cost of each individual type of coverage included in a BOP—general liability, commercial property, and business income insurance—will also affect the total cost of a BOP plan.

Small-Business Insurance Cost

Do I need small-business insurance?

It’s recommended that almost all small-business owners purchase at least some form of liability insurance to help protect their business if they or their employees are liable for causing property damage or injuries to a third party. However, the exact insurance needs vary by business, and a general contractor’s insurance needs may be vastly different compared with those of an accountant. Some forms of small-business insurance, such as workers’ compensation insurance, might be a requirement for certain businesses but not for others—sole proprietorships without any employees on staff, for instance. Small-business owners will want to learn more about their state insurance laws and consider their business needs to help decide what business insurance policies are right for them.

State Requirements

Depending on the location of a business, business owners may face different insurance requirements as dictated by the state government. Workers’ compensation and commercial car insurance are two types of legally required insurance coverage. If a business with employees and business-owned vehicles operates in a state with these insurance requirements, the owner will likely need to purchase both types of policies. With that in mind, business owners may want to double-check the coverage requirements for their state. Some states may require higher coverage amount requirements than others. It’s also worth noting that in addition to state-level requirements, businesses may need to adhere to federal requirements regarding small-business insurance. For instance, as the U.S. Small Business Administration notes, any business that keeps employees on staff is legally required to purchase workers’ compensation insurance, according to federal guidelines.

Client Requirements

It’s not unusual for clients to require business owners to carry certain types of insurance or a certain amount of insurance before they will sign a contract or agreement. A client might request that a small-business owner have general liability coverage or professional liability protection to ease any concerns about liability issues in the event that something goes wrong.

For example, before hiring a lawn care company to maintain its offices, a large corporation may require the business to carry extensive liability insurance coverage in case of an accident. If the lawn care company accidentally damages the client’s property or causes an injury due to negligence, the client knows the lawn care company has insurance to help cover the damages. Although larger clients (such as corporations) may be more likely to make these stipulations, individual customers could make similar demands. For instance, homeowners may want to see proof of insurance before hiring a contractor or electrician.

Business Property Protection

Every piece of equipment a small business owns, as well as any office supplies or business materials it possesses, is at risk of being damaged by a covered loss or stolen from a jobsite or business-owned property. Without business property insurance, the business owner will have to replace or repair any damaged, destroyed, or stolen items out of pocket. For expensive property and assets, such as heavy equipment, computers, or office furniture, the cost of replacement could financially ruin a business. With the right business property insurance in place, though, the business’s equipment, wares, vehicles, and real estate can all be shielded by financial protection from covered losses.

Business Liability Protection

Business liability insurance is often an important risk management tool for small businesses. Many small-business owners find benefits in purchasing liability protection, even in addition to any state liability insurance requirements. Small-business owners open themselves up to a lot of risks when they work with a client, hire a new employee, or hit the road in a company-owned vehicle. Business owners who are liable for damages or injuries that happen during the course of doing business will likely be responsible for covering those costs regardless of whether they have insurance or not.

Having the right liability protection can limit the financial damage a covered loss causes to a small business. In a worst-case scenario, a business without ample coverage could face bankruptcy and close its doors for good if it has to pay out of pocket for liability damages. However, with enough liability coverage, a small-business owner can lessen the financial sting of covered losses, such as injuries to workers or clients or accidental property damage.

How to Save Money on Small-Business Insurance

Although the cost of small-business insurance can vary based on the type of business, industry, and location, most small businesses can save money on their insurance policies. As for personal insurance policies, many insurance companies offer ways to lower the cost of commercial insurance. The Insurance Information Institute suggests several ways for small-business owners to reduce the amount they pay for commercial insurance.

  • Shop around for the best price: By comparing similar policies from different insurance providers—getting at least three quotes may be ideal—business owners can get a better sense of what a reasonable price is for insurance in their industry and location.
  • Bundle policies or purchase a BOP: Bundling insurance can result in lower premiums with similar levels of coverage compared with buying separate policies individually.
  • Increase the policy’s deductible amount: Insurance companies typically offer lower premiums to customers who raise their deductible, although this means that policyholders could receive a lower payout on any claim they file in the future.
  • Ask an insurance agent or insurance broker for help: Small-business owners can avoid overpaying for coverage they don’t need by consulting with an insurance agent who can craft a policy to their business’s needs. Representatives may also point them toward discounts they are eligible for to reduce the cost of coverage.

Questions to Ask About Small-Business Insurance

Small-business owners may not be sure what type of insurance coverage they need or how much coverage they should choose to sufficiently protect their assets and finances. Before buying an insurance policy, small-business owners may want to seek out the help and advice of a trusted insurance professional. Some questions a small-business owner may want to ask their insurance agent before signing up for a policy include:

  • Does my state require specific insurance coverage? If so, what are the minimum coverage limits for each type of required coverage?
  • What types of commercial insurance policies make the most sense for my business?
  • How much insurance coverage does my business currently have, and is it enough for my current business situation?
  • What cost factors can I control to adjust the price of my insurance, such as lowering or raising my deductible?


Many small-business owners have questions about their coverage options, coverage amounts, and specific policy terms. To get the right coverage for their business, small-business owners may want to start by gaining a full understanding of their options. Additionally, working with a commercial insurance agent or insurance broker can often help small-business owners find the coverage their business needs at a price they can afford.

Q. What is commercial umbrella insurance?

A commercial umbrella liability policy helps small-business owners obtain additional liability protection to cover damages that exceed their general liability coverage limits. If a business exceeds its liability coverage limits, its umbrella insurance can step in to cover the remaining amount. For example, if a general contractor accidentally caused damage to a client’s property that totaled $1.5 million but their liability insurance only covered $1 million, they would be responsible for paying the difference out of pocket. However, if that contractor had commercial umbrella coverage, that policy could cover the remaining $500,000.

Q. How much small-business insurance should I buy?

There is no set figure for the amount of business insurance a small-business owner should buy. Instead, it’s recommended that small-business owners carefully consider their unique situation when shopping for insurance coverage. To obtain the right amount of coverage, a small-business owner needs to consider the risks, expenses, and cash flow of the business. Additionally, working with a trusted insurance professional, like a commercial insurance agent, can help business owners determine how much coverage they need. It can be a good idea to look for insurance providers that specialize in certain industries and are experts in coverage for those fields. For instance, the owner of a lawn care business may want to seek out the best insurance for lawn care businesses when weighing their options.

Q. What is the difference between liability and umbrella insurance?

Liability insurance is a form of coverage that protects a business in the event it’s liable for property damage or injuries to others, for example. It can also cover the cost of legal fees if a business is sued. Umbrella insurance is a type of liability coverage that provides additional coverage for small businesses on top of their existing liability policies. In the context of small-business insurance, umbrella coverage kicks in when policyholders exceed their general liability coverage limit.

Q. What is an insurance deductible?

An insurance deductible is the amount of money an insurance company will deduct from the payout on a claim before disbursing funds to the policyholder. For example, if a lawn care business loses $5,000 worth of equipment in a fire and it has a $1,000 deductible, then the insurance company would pay out $4,000 to replace the covered equipment. It’s important to understand insurance deductibles and how they work, as they directly affect both the size of a payout on any claim and the cost of insurance premiums.

Q. What is excess liability coverage?

Similar to umbrella insurance, excess liability coverage is a type of insurance coverage that helps small-business owners cover liability costs that exceed their initial liability protection. The main difference between excess liability insurance and umbrella insurance is that excess liability policies only cover what the underlying liability policy covers. The excess liability policy will have the same coverage restrictions and exclusions as that liability policy (aside from the coverage limit). On the other hand, an umbrella policy may offer expanded coverage in certain situations that go beyond the scope of the underlying policy terms.

Q. What is an insurance premium?

An insurance premium is the cost of an insurance policy. Many small-business owners pay their insurance premiums on a monthly or annual basis, but they may also be able to make quarterly payments to cover their premiums.