When you're running a small business, insurance is one of those necessary expenses that can really eat away at profits.
According to data from The Hartford, a Business Owner's Policy (BOP), which combines business liability and commercial property coverage into one policy, costs the average small business owner $3,125 per year. And adding workers' compensation coverage costs an extra $840 per year, on average. Your costs could be higher or lower depending on your industry, the value of your property, and other coverages you might need to add on.
While protecting your business from risks and potential lawsuits is essential, the cost can strain your bottom line. Fortunately, there are ways to reduce your insurance costs without sacrificing coverage. So let's explore some tips and strategies for saving money on business insurance.
Pay a higher deductible
One of the easiest ways to lower your insurance premiums is to opt for a higher deductible. A deductible is the amount of the claim that you are responsible for paying out-of-pocket before your insurance coverage starts.
For example, if you have a $10,000 claim and your policy has a $1,000 deductible, you'll pay the first $1,000 of the loss out of pocket, and your insurance company will pay the remaining $9,000.
By opting for a higher deductible, you'll assume more risk but also pay a lower premium. This can be a good strategy if you have a healthy cash reserve and are comfortable assuming more risk.
Bundle policies
Bundling your policies is another way to save money on small business insurance. If you have multiple business insurance policies with different providers, you may be able to save by combining them under the same one.
For example, you can bundle your general liability, property and commercial auto insurance under one policy — or at least with the same insurance company.
Many insurance companies offer a "multi-line discount" for customers that bundle, so this can result in a lower overall premium. Bundling also helps eliminate — or at least reduce — coverage gaps. A coverage gap is a situation where you have inadequate protection against a certain risk. It could happen when you don't understand the scope of your coverage and believe you have coverage for a certain kind of claim when you actually don't.
Bundling policies with one company helps you avoid coverage gaps because you have one agent who knows and understands your insurance needs and can make recommendations so you'll be properly protected in the event of a claim.
Purchase the correct type of business insurance
Some types of business insurance, such as commercial auto liability or workers' compensation, may be required by law. Other types, like business property and general liability insurance, aren't legally required but are generally considered essential. And still other types of policies might not be essential but can provide an extra layer of protection for your business.
For example, you might want:
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Product liability if you manufacture, distribute or sell a physical product
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Professional liability if you could be sued by customers for malpractice or negligence
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Business income insurance to cover losses if your business has to close temporarily
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Cyber liability coverage to protect against data breaches or cyber attacks
It's important to ensure you purchase the correct type of insurance for your business. By getting the right type of coverage, you can avoid overpaying for coverage you don't need.
Prevent claims
Insurance can be a double-edged sword: you buy it to protect your business against losses, but filing claims can drive up the cost of coverage — or even cause your insurance company to decide not to renew your policy.
For this reason, it's important to take steps to prevent claims whenever possible.
Depending on your industry, you might ensure all employees receive safety training, implement best practices for quality control and customer service, have proper safety protocols for hazardous materials, and adhere to Occupational Safety and Health Administration (OSHA) safety regulations to reduce the chances of accidents and injuries that could result in costly claims.
Having a risk management plan can help you identify potential risks and address them before they become lawsuits or damages that impact your insurance rates.
Shop around for the best price and coverage
Finally, one of the best ways to save money on business insurance is to shop around. Get multiple quotes from different providers and compare coverage and pricing. You may be surprised at how much the premiums can vary between providers for virtually identical coverage.
If you've been with the same insurance company for several years, don't assume it's giving you the best price. It's worth taking the time to do some comparison shopping.
Business insurance is an essential expense for most small business owners. But that doesn't mean you have to pay more than you need to. By opting for higher deductibles, bundling policies, purchasing the correct types of insurance, avoiding claims and shopping around, you can protect your business while keeping your costs under control.