While thinking about opening an accountancy firm of my own, I came through a lot of difficulties in my way. I was finding a new apartment for the office, hiring employees, purchasing electrical components, and many more.

But, most importantly, one difficult parameter that I have encountered is the insurance policies for a new business starter. According to my research, they can cost you considerable money.

Why is business insurance so expensive? First of all, there is no assurance that a particular business will run smoothly without any hassle. In this article, we will briefly discuss business insurance expenses, different policies of business insurance, and the factors affecting them.

What Is Business Insurance?

Do you know what is meant by business insurance? Business insurance is a type of coverage that will protect your business’s capital from any losses, environmental accidents, etc.

For example, you have an industry that has been ruined due to a fire incident. You will certainly need money to cover the losses the insurance companies will cover.

Furthermore, your employees are your responsibility, which falls inside this business insurance category. Suppose one of your employees has been in a road accident while doing the company’s work; your responsibility is to go through all the medical expenses.

As you can see, there are reasons one should place great importance on business insurance. For simplicity, we have narrowed down some for you, and they are as follows:

• New business owners in this corporate world should carefully assess their expenses and incomes and decide whether they can handle all the risks.

If they find that they are wildly incapable of bearing such risks, they should consult a reliable insurance agent to provide them with good business insurance.

• Business insurance not only provides backup for your company’s profit, but it also covers accidents such as fire hazards, road accidents, health hazards, and so on.

• Moreover, run out of cash flow in your business. The insurance providers can provide you with the necessary insurance amounts so that you can efficiently continue to finance your business’s income.

Now that you have known all the important features related to business insurance, they also have some drawbacks that a business owner should consider.

• When a business corporation asks for insurance money, the agents must perform a thorough check and verify the events or losses the company is going through.

Therefore, the waiting period for business insurance is very long, merely taking about one month to provide financial support to your business.

• Also, every insurance provider comes up with a certain agreement of deductible fees with the companies, which many owners claim to be very high.

For example, suppose your company requires 100000 dollars to compensate for the losses. In that case, the business insurance will sign a deductible fee of a minimum of 30000 dollars, which is problematic for small business owners.

After careful consideration, you might have already guessed why is business insurance so expensive. For further analysis, let us have a look at the later section for more details.

Why Are Business Insurances So Expensive?

Business insurance companies have been researching their resources for quite a long time now. Apparently, they have a clear idea about which type of business will likely cause real insurance threats. Therefore, they set their insurance costs accordingly.

Let us compare two business firms- one is accounting and the other in textile industries. Employees in an accounting firm have very little chance of getting hurt due to road accidents, fire hazards, harmful chemicals, and many more.

On the other hand, workers in the textile industry have to control many mechanical machines while they work. Hence, there is a bigger chance of injury and fire hazards that might raise unplanned medical bills.

Also, the chance of yearly business loss is high in both accounting and textile firms. The insurance providers will carefully examine these parameters before offering suitable insurance money.

Due to this analysis, the waiting period for business insurance money is also very high. To save the insurance company from certain losses, they also demand high deductible fees from the business corporations.

Therefore, it will be our prime suggestion to have a clear-cut motive about your business structures, income statement, and balance sheet that can satisfy particular insurance agents so that they provide you with a flexible business insurance policy.

Speaking of policies, it is time to check out what business insurance policies are available for business owners so that they can continue their cash flow smoothly.

Types Of Policies for Business Insurance

You will be overwhelmed to hear that insurance companies offer many business policy coverages that can save your business run from losses or certain accidents. The list below will show the following names:

• General Liability Insurance.
• Commercial Property Insurance.
• Business Income Insurance.
• Professional Liability Insurance.
• Worker’s Compensation Insurance.

General Liability Insurance

This type of insurance mainly offers you coverage for any injury, such as accidents, damage to the property or industrial hazards, such as machine broke down, fire hazards, etc.

General insurance is mainly given to the company’s or firm’s employees, and it will cover all the medical bills, property renovation costs, and many more. Note that one has to pay a certain amount of deductibles to account for this insurance, and that amount is spent by either the company or the employer themselves.

Commercial Property Insurance

Let’s imagine that you own a building that runs your office 24/7. Therefore, commercial property insurance coverage will provide you with a general insurance amount that will cover any building damage. Hence, it would be best if you also accounted for the longevity of your business’s building.

Note that this insurance coverage does not pay for certain damages to your building due to natural disasters such as floods, earthquakes, tsunamis, and many more.

Insurance agents are very specific about this certain parameter. But, they are also ready to throw you options where you can insure your building for natural disasters as well. We suggest giving it a look!

Business Income Insurance

As we mentioned above about cashflows, suppose you cannot pay your utility bills, rent, or payroll expenses. Insurance companies would gladly offer you business income insurance that provides a considerable amount of money so that you can reduce the number of unpaid bills and renew your cash flow once again.

Professional Liability Insurance

Consider the fact that you have had a bad dealing agreement with one of your clients, and they are threatening to sue you in court. Professional liability insurance will cover all the expenses regarding this lawsuit matter.

If you have made any certain mistake in your agreement, then this insurance will also negotiate and cover the damaged cost that your client demands. Additionally, this type of insurance coverage is also known as errors and omissions insurance coverage.

Note that this insurance will also pay for all the visits to the lawyer’s office and courtroom. Therefore, these advantages make professional liability insurance very promising in business areas.

Worker’s Compensation Insurance

This insurance policy is dedicated only to the workers in your business firm. One might ask, what is the difference between general liability and worker’s compensation insurance?

Well, general liability offers injury money for all the members of a business corporation, employees to be exact. At the same time, worker’s compensation is the cost related to workers themselves.

Let’s check out the list of coverages it can provide for the workers:

• It can pay the medical bills
• Cover the wages for any kind of absence from the work
• In case someone dies from any kind of accident, the funeral costs will be taken care of.
• It also provides physical therapy session costs for the workers to keep their minds fresh during work.

Factors Affecting the Business Insurance Cost

Why is business insurance so expensive? That’s because providing business insurance is not a piece of cake for every insurance company. There are certain factors upon which the insurance cost varies.

They are as follows:

• Level of Risk.
• Location of the Business Firm.
• History of the Business.
• Employee Numbers and Experience.
• Yearly Profit.

Level of Risk

The first factor that every insurance company will consider is the level of risk in your particular business. For example, the stock market business has the highest risk and income simultaneously.

Unfortunately, insurance agents hold huge business insurance costs regarding stock market business. In simpler terms, whenever they sense there is no cash flow guarantee, the insurance cost will be high.

Location of the Business Firm

Insurance costs are also dependent on the location of your business firm. For example, if your business is situated in an area with more chances of floods, tornadoes, tsunamis, earthquakes, and other natural disasters, the insurance costs will be high.

Note that normally business insurance companies do not provide insurance for natural disasters. But, if they do, the rates will be tremendously high.

History of the Business

If several insurance companies have run down your company, this will set a bad insurance history for your company. In that case, finding another business insurance-providing company will be troublesome.

Additionally, you want to enter a business insurance company. In that case, you have to pay for higher rates of insurance money which will create a huge burden on your yearly expenses.

Employee Numbers and Job Experience

Suppose your company has a considerable number of employees. In that case, getting a cheap insurance rate will be tough because the insurance providers will realize the cost of all the medical bills they must go through if there is any damage due to fire hazards.

On the other hand, if the employees have considerable job experience in your company, the providers will mark your corporation as professional and stable, making it easy to lower insurance cost rates.

Yearly Profit

Last but not least, the annual profit of a company is also reflected in the insurance costs. If the providers observe that you have considerable profit on a yearly basis, they will try to hook you up with their most expensive insurance policies.

Though the services will be top-notch, we will recommend that it is completely unnecessary to do so. Therefore, negotiate with your providers so that they can deal with a decent insurance policy for your company.

Refrain from trying to show a lower annual profit to your insurance providers, as their investigation will bring out all your company’s income statements and balance sheets. This might make your look bad!

Frequently Asked Questions

Conclusion

As a result, having suitable and affordable business insurance will help your business profit increase even at a faster rate. Additionally, you will not have to worry about your workers’ and employees’ well-being as the insurance money will cover any health hazards or accidents.

Unfortunately, business insurance costs are high as insurance companies also need to consider their profit. But, to get a decent insurance rate, there are certain factors you need to consider that are listed above.

Therefore, next time someone asks why is business insurance so expensive? They will have a clear idea about the costs and the related factors so they can take the necessary steps. Do not forget to mention them in our article.