If you’re thinking about taking the leap into business ownership, there are many things to consider and insurance is certainly one of them.
When most small business owners think of “business insurance” they are usually thinking of general liability insurance. It’s the backbone of all business insurance and the basic component necessary to operate a business.
Of course, once you realize you need insurance, the obvious next question is “So how much does it cost”? Just like many other types of insurance, there is no standard “off-the-shelf” rate. Insurance rating has gotten very complex over the years, with hundreds of variables built into the formula. So there’s no one-size-fits-all approach. It’s tailored to YOUR individual situation.
This article defines general liability insurance, lists some of the most common rating factors that determine cost and discusses how those rating factors affect the premium you pay.
What is General Liability insurance?
In its simplest form, general liability insurance provides coverage for the legal liability of an insured for bodily injury or property damage to others arising out of the business premises or operations (includes both ongoing and completed operations). “To others” is important here. It does not cover bodily injury or property damage to an insured, the employees or an insured’s property.
Common Factors that determine the cost of general liability insurance
General Liability Insurance Cost Factor 1: Type of operation
A small gift shop or retail store will generally be less costly than a concrete contractor. The reason is simple: a small gift or retail shop is low-risk, while there is more risk of bodily injury or property damage occurring with a contractor- they’re mobile, doing more hazardous work, around more people, you get the idea. So the type of business you open will have a big impact on cost.
General Liability Insurance Cost Factor 2: Size of operation
General liability insurance is rated based on a number of items (depending on the type of operation). For example, many contractor risks are rated based on employee payroll. So the larger the payroll, the more work you’re doing, the greater the chance for a claim and the more premium you’ll pay.
Other common rating favors include sales (many retail operations qualify here) and square footage (a common example is a building rented to others).
One example: a restaurant may be rated based on annual sales. A restaurant with $250,000 in sales will be a lower premium than one that has $750,000 in annual sales.
General Liability Insurance Cost Factor 3: Location of operation
If your business is located in a high traffic area (either foot traffic or just a more urban environment), there’s a better chance that the premium will be higher than if your business is located in a more rural, low traffic setting.
General Liability Insurance Cost Factor 4: Your experience
Length of time in your business and financial stability can easily have an impact on your premium. It can also affect whether or not you can get a policy (some carriers are not fans of new business ventures), and whether or not you qualify for any discounts.
General Liability Insurance Cost Factor 5: Coverage Amount
The more coverage you have, the more premium you’ll pay. So you can expect that buying a $300,000 liability policy will cost less than a $1 million policy. That being said, there is often a small difference in premium between the lower limit and the higher, so it’s worth it to check out.
General Liability Insurance Cost Factor 6: Insurance company rules
Most insurance companies have a minimum premium they charge to even issue a policy. So for example, a typical annual minimum policy premium for general liability insurance is $500. Your small gift shop may only generate $10,000 in sales, but you’ll still pay $500 for the policy. The upside here is that you have “wiggle room” so more sales may not necessarily equal more premium.