Between 2002 and 2012, covered employees in small firms had their average annual family premium increased by 96 percent – from $7,781 to $15,253, according to the NFIB. While such costs rose by the lowest percentage in more than 15 years in 2013, says Jerry Geisel, it is easy to see how significant even one area of small business insurance can be. After all, small businesses pay around 18 percent more for health insurance than larger companies.
How much can businesses expect to pay for health, life, general liability, and other forms of small business insurance? Some rules of thumb and examples can shed light on the situation.
Pointers for Predicting Small Business Insurance Costs
A rule of thumb for small business insurance is similar to that of car insurance, interest rates on a credit card, or the average down payment on a home– they are all simply estimates. Nevertheless, such an introduction can be helpful.
“Consider between 20 and 30 percent of predicted gross sales as the baseline budget for comprehensive coverage,” says Lou Dubois on Inc. He adds that “this is likely too low for high-risk industries like construction and manufacturing and too high for home-based consulting and businesses not offering health insurance.”
Another important caveat to keep in mind is that many businesses will have a different insurance profile. Add-ons such as errors and omissions coverage and business interruption insurance could be necessary for a business’ needs, and would thus affect one’s rates.
It’s All in the Details
What might an insurance policy cost, and how would it work into a business’ budget and insurance profile? Take a look at these two policy examples:
1. Dubois tells a story of a coffee shop chain that has five shops in the Providence, Rhode Island area. When a water main broke in one of the shops, the entire store was flooded within 20 minutes. While many small business owners might only have standard property insurance – which could cost a couple thousand a year and not cover this scenario – business interruption insurance saved the day, granting the owner $50,000 in two days.
2. The U.S. Small Business Administration states that annual premiums for liability insurance range from $750 to $2,000, based on the needs of the business. It also notes that a business may want some additional protection, in the form of excess insurance or umbrella insurance to increase coverage limits.
Some business owners aren’t aware that a standard property insurance policy won’t cover flooding and earthquakes. It is vital that small business examine the details to know what is and isn’t covered, which can all impact the cost of small business insurance.
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