How much does business insurance cost?

California’s Department of Insurance sums up commercial insurance pricing in one line: rate x exposure = premium. The rate comes from what your business does and where, and the exposure is how much of it there is, measured in payroll, sales, square footage or the value of what you own. Your limits, your deductible and your claims record then push the result up or down, which is why the price of business insurance is a calculation about your business and not a figure anyone can quote you in advance.

So the honest answer to “how much does it cost?” is that it costs whatever those inputs produce for you, and the inputs are knowable. This guide goes through each one, shows which policies weigh which facts, and spends most of its time on the part owners get wrong: comparing two quotes that look alike and aren’t.

The formula behind every quote

Every business policy is built on two numbers: a rate, which reflects how likely and how expensive a claim is for businesses like yours, and an exposure, which measures how much of that risk you carry. California’s commercial insurance guide explains that for general liability the exposure can be square footage, payroll or gross sales, depending on the classification codes used, and that property is rated on factors such as square footage, construction, sprinklers and the area’s fire protection class.

The rate starts with your classification. The same California guide calls classification “the first step to determine premium,” and the NAIC’s small business guide makes the same point more bluntly: “The type of business greatly influences liability premiums.” A café with fryers and wet floors, a roofer on a pitched roof and a bookkeeper at a desk are rated from very different places before anyone looks at their size.

After rate and exposure come the modifiers, and California lists three of them: experience modifications, which adjust for your own claims record, along with schedule rating, which adds debits and credits for specific traits of your business, and judgment rating, which reflects the underwriter’s view of the risk. Your deductible is built into the rate too.

That’s the whole skeleton. Everything that follows, from payroll audits to per-car deductibles to the reason two quotes for the same café can look nothing alike, is detail about one of those pieces.

Why we won’t print an average cost

You’ll find “average cost of business insurance” figures all over the internet, and we think you should ignore every one of them, because an average that blends a two-person design studio with a ten-person roofing crew describes neither business and tells you nothing about your own bill. Those averages answer a question you didn’t ask, since the inputs that actually set your price, your class, your payroll, your state, your limits and your record, are exactly the things an average throws away.

There’s a second problem. Many of those figures quote a single policy with unstated limits and deductibles, so you can’t tell whether the number buys $300,000 of coverage or $2 million, and a quote built from your own details doesn’t have that problem because every limit and deductible is printed on it.

What each of the eight policies is priced on

Each policy leans on different facts, which is why a single application can ask about payroll, square footage, lot fencing and data backups all at once. The table below shows what mostly drives each of Corgi’s eight policies, and three of them, workers’ comp, general liability and professional liability, have cost guides of their own.

Read down the table and a pattern shows up: liability policies follow activity, so more sales, more payroll and riskier work mean more chances for someone to get hurt or lose money. Property-type policies follow value and protection, which is why a sprinkler system or a fenced, lit lot shows up on the application at all. Workers’ comp follows payroll and the hazard of each job, which makes it the most mechanical of the eight.

The price on your quote isn’t the final price

Owners tend to treat the number on a quote as fixed, and for policies priced on payroll or sales it isn’t. Because next year’s payroll and sales don’t exist yet, you give an estimate, the policy is priced on it, and once the policy periodPolicy periodThe policy period is the span of time between a policy’s start and end dates, usually 12 months, during which its coverage is in force.Read the definition ends the insurer checks the real figures in a premium auditPremium auditA premium audit is the insurer’s review of your actual payroll, sales or other figures after a policy ends, used to replace estimates and set your final premium.Read the definition. The NAIC’s guide says liability premiums “are typically linked to a business’ sales and payroll estimates,” and that if the actual amounts come in lower than estimated, the insured may be entitled to a refund, while higher amounts mean more premium. California’s Department of Insurance says the same about workers’ comp: the final premium can’t be calculated until the policy term is over.

So a “cheap” quote means something different here. A quote built on a low payroll estimate is cheap today and expensive a year from now, when the audit bill arrives as one lump. Plan for the real number.

Does your claims history change the price?

Yes, and of all the inputs it’s the one with the longest memory, because a claim from three years ago can still be sitting on the loss run an insurer reads before it prices your renewal. The NAIC puts it directly: “A high past-claims history can increase insurance costs.” Insurers usually see that history through a loss runLoss runA loss run is a report from your insurer listing the claims filed under your policies over a set period, with dates, amounts paid and whether each is still open.Read the definition, the report of claims from your current or past insurer, and what loss runs are explains how to get one before you shop.

For workers’ comp, the record becomes a number. Employers that qualify get an experience modificationExperience modification rateAn experience modification rate (EMR) is a workers’ comp factor that raises or lowers your premium by comparing your past claims with those of similar businesses.Read the definition, and NCCI explains that it compares an employer’s payroll and losses with the average employer in the same classification, usually over the latest three years of data, with better-than-average records earning a credit and worse ones a debit. NCCI’s plan also gives more weight to how often injuries happen than to the size of any one injury, which means a run of small claims can hurt a mod more than one bad accident. Frequency is the tell.

What about a business with no history at all? A new business is priced mostly on its class, location and size, and the owner’s years in the trade can help. Safety counts as well, because a documented safety program is one of the few traits an underwriter can credit on a business with no record yet; the NAIC says businesses “with solid, documented safety practices in place may be assessed lower risk and charged lower premiums,” and ways to lower your business insurance costs lists the steps that tend to matter. You can’t change last year’s claims. Next year’s are still open.

Limits and deductibles: the part you choose

Here’s our position. Pick limits from your contracts first and your fears second, and pick deductibles from your bank balance.

A higher limit means the insurer could pay more, so it costs more. General liability usually comes with a per-occurrence limitPer-occurrence limitA per-occurrence limit is the most a liability policy will pay for all claims arising from a single incident, however many people are hurt or claims are filed.Read the definition and a yearly aggregate limitAggregate limitAn aggregate limit is the most a policy will pay for all covered claims combined during one policy period, no matter how many claims you have.Read the definition, and $1 million per claim with $2 million per year is a pairing many leases and client contracts name. Your lease and contracts set the floor. Buying below it saves money right up until a landlord or general contractor rejects your certificate, and how to choose liability limits walks through the rest of the decision, including when a serious claim could go past what your contracts ask for.

A deductibleDeductibleA deductible is the amount you pay toward a covered loss before your insurance pays, usually subtracted from the claim payment.Read the definition works the other way. The NAIC notes that “higher deductibles typically equate to lower premiums,” and California’s guide says the deductible is calculated into the rate, while warning against deductibles so large they put the business at risk. Choose the highest one you could pay from cash, more than once in a year if claims are common in your work. On garagekeepers the deductible often applies per car, and on business income the waiting periodWaiting periodA waiting period is the stretch of time after a covered loss before coverage, such as business income, starts paying, working like a deductible measured in hours or days.Read the definition works like a deductible measured in hours, so how to choose a deductible is worth reading before you change either.

A few coverage choices move the price as well: garagekeepers with direct coverage can help pay for covered damage to customers’ cars whether or not you were at fault, subject to its terms and limit, so it usually costs more than legal liability coverage, which typically responds only when you’re legally responsible. Property insured at replacement costReplacement costReplacement cost is a way of valuing property losses that pays to repair or replace damaged items with new ones of like kind and quality, without subtracting depreciation.Read the definition typically pays more after a covered loss than actual cash valueActual cash valueActual cash value (ACV) is what damaged property was worth when it was lost, usually its replacement cost minus depreciation for age and wear.Read the definition, because it doesn’t subtract for wear and age, and the price reflects that.

Why two quotes for the same business differ

That pattern, a cheaper quote that turns out to be smaller coverage, is the single most useful thing to understand about insurance prices. The SBA says prices and benefits “can vary significantly” and tells owners to compare offers, which is good advice, but only once the offers describe the same thing. When they don’t, the gap between two quotes is usually made of five ingredients:

1. Different coverage. One quote has a $1 million limit and the other $500,000, or the deductibles differ, or one includes a policy the other leaves out.
2. Different classification. A business that does more than one thing can be described more than one way, and each description carries its own rate.
3. Different estimates. A quote built on last year’s payroll and one built on next year’s plan aren’t comparable, and the lower one will be corrected at audit.
4. Different wording. ExclusionsExclusionAn exclusion is a provision in an insurance policy that removes coverage for specific causes, types of loss, property or activities the policy would otherwise cover.Read the definition, endorsementsEndorsementAn endorsement is a written change to an insurance policy that adds, removes or modifies coverage, such as adding an additional insured or a new location.Read the definition and sublimitsSublimitA sublimit is a smaller cap within a policy’s overall limit that applies to one specific type of loss or coverage, and it doesn’t add to the overall limit.Read the definition vary from policy to policy, and so does whether a policy is occurrence or claims-madeClaims-made policyA claims-made policy covers claims first made against you during the policy period, for work or incidents that happened on or after the policy’s retroactive date.Read the definition; how to read an insurance policy shows where to look.
5. Different insurers. Insurers price the same class differently and want some kinds of business more than others. Maine’s Bureau of Insurance notes that workers’ comp rates “vary by classification and by insurer,” and that many insurers have more than one rate level.

Only the fifth is real price competition. The first and fourth are differences in coverage, the second is a disagreement about what you do that the right answer should settle, and the third is a bill postponed until the audit. A quote that wins on coverage, wording or a low estimate isn’t cheaper in any way that will matter when you have a claim.

How to line up two quotes

Before comparing the totals, make both quotes describe the same coverage by going down this list with both of them open in front of you.

Two rows catch the most problems. Contract items, because a quote without the additional insuredAdditional insuredAn additional insured is a person or company, such as a landlord or client, added to your liability policy so it can protect them from claims tied to your work.Read the definition or waiver of subrogationWaiver of subrogationA waiver of subrogation is an agreement, usually added to your policy by endorsement, that stops your insurer from recovering claim payments from a specific client, landlord or contractor.Read the definition endorsement your landlord requires will fail the moment you send the certificate. And the retroactive dateRetroactive dateA retroactive date is the earliest date of work or events a claims-made policy covers, so anything that happened before it isn’t covered, even if the claim is new.Read the definition on claims-made policies, because a new policy that starts its retroactive date today can leave years of past work uncovered; occurrence vs. claims-made policies explains why.

If the quotes still differ after that, you’re looking at a real price difference, and it’s worth asking what else you get for it, such as how fast you can get a certificate of insurance (COI)Certificate of insuranceA certificate of insurance (COI) is a one-page summary that proves your business has insurance, listing your policies, limits, insurers and policy dates.Read the definition when a client asks and who handles your claim.

Getting your own number

The fastest way to stop guessing is to put your own details into a quote. With Corgi, you can get a quote online in about five minutes, and the checklist of what you need for a quote lists the figures to have ready, mainly payroll, sales, property values and the insurance clauses from your lease and contracts. If something on the application doesn’t fit your business, underwriters answer your questions, not a broker.

Once you buy, your certificate is available the same day to download or send to a landlord or client from your account, and the premium on your policy will have come from the same handful of inputs this guide walked through: your class, your size, your location, your record and the limits and deductibles you chose.