Securing business insurance is essential, but the quote you receive can often be dense and complex, leaving many business owners uncertain about what they’re paying for. From understanding what different coverages mean to evaluating the cost-effectiveness of various premiums, there’s a lot to consider before committing.
It may be tempting to compare quotes solely based on premium costs. However, overlooking details like policy limits, exclusions, and deductibles can lead to underinsurance and potential losses in the long term. In fact, 43% of small businesses are uninsured, and 75% are underinsured. Many businesses are vulnerable to risks that could result in costly claims and even permanent closure.
By deconstructing your quote, you can ensure you’re paying for comprehensive, relevant coverage that won’t expose you to unnecessary risk. This article breaks down each part of a business insurance quote so you can make informed decisions and ensure you’re properly protected.
Continue reading to gain expert insights from Anne Russo, Director of small business underwriting at Central Insurance.
The Basics: What to Look for Before You Sign
When reviewing your business insurance quote, it can be easy to overlook the details—especially with so many terms and numbers on the page. However, getting a clear picture of what’s covered and how much it will cost is crucial to ensuring your business is adequately protected.
Business Name and Ownership: make sure the business name and entity are correct. It’s essential the entity listed legally owns the property you’re insuring. Confusion here can lead to issues down the line—particularly in the event of a claim.
“If you have a corporation or do business under a specific name, make sure that’s the exact name listed as it appears with the Secretary of State,” says Russo. “The more names or variations on the quote, the more complicated things can get down the road.”
Understanding the Effective Date: The effective date of your policy is key. “Usually, it’s when your previous policy expires or the date you take ownership of a new property,” Russo explains. This is particularly important if you’re buying property to lease out. It might not always line up with your current policy dates. Make sure the quote reflects your actual needs and timeline.
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Understanding Your Business Insurance Quote
After you understand the basics, the next part of your quote will break down the different parts of your business insurance policy. You’ll see a premium for each of your coverages, such as building coverage, business personal property, property of others, business income coverage, and optional coverages. You’ll also see an estimated premium for the package.
Premiums: The Cost of Coverage
A premium is the recurring cost you pay to keep your insurance active, typically monthly, quarterly, or annually. Premium amounts vary depending on several factors, including your industry, location, business size, and claims history. Insurers calculate these premiums based on risk—the higher the risk, the higher the premium.
“Some industries are inherently higher risk, which will generate higher premiums,” Russo explains. “Additionally, if you have a history of frequent claims, this will likely increase your costs.” While inflation affects all types of insurance premiums, it’s important to understand that, generally, your premium might not remain the same year after year.
Key Factors Affecting Premiums:
- Industry Type: High-risk industries like construction or healthcare generally pay higher premiums
- Location: Businesses in areas prone to natural disasters may have increased premiums for property coverage
- Claims History: A history of frequent claims can indicate higher risk, raising premiums
- Policy Type and Coverage Limits: Higher and specialized coverage limits add to your premium
“Premiums based on sales or payroll can fluctuate throughout the year,” explains Russo. “If your business grows and your payroll increases, expect your premium to rise as well.” For example, if you estimate $1 million in sales but exceed that, the insurer can adjust your premium accordingly at the end of the term.
Remember: If your business has multiple locations, make sure they’re all accounted for within your quote.
Russo emphasizes the importance of understanding your premium breakdown. This way, you can see how the insurer perceives your business’s risk profile and whether your payments align with the coverage provided.
Coverage Types and Their Cost Implications
A comprehensive business insurance policy includes various coverage types with specific purposes and costs. Here, Russo lists some of the most common types and what they offer:
- General Liability Insurance: Covers third-party bodily injury, property damage, and advertising injury. It’s crucial for all businesses, as it protects against common liabilities.
“For general liability, the premium could be calculated on your annual sales or payroll, based on your business classification. Make sure whichever one is used is the best estimate going forward for the next year of your business,” Russo says. “If it’s over or below, you’ll have to pay more money or receive money back through a premium audit. You’ll want to make sure it evens out every year.”
- Commercial Property Insurance: Protects your business’s physical assets (e.g., buildings and equipment). Costs depend on their value and location. Learn more about the market value vs. dwelling value of your property.
- Workers’ Compensation: Covers medical expenses and lost wages for injured employees. “Remember, if you were to have five employees at the start of the year and add more due to a big job, you’ll be charged more at the end of the policy term,” Russo explains.
Many businesses require additional coverage for specific risks. This can include cyber insurance, which Russo recommends in today’s digital age. Always make sure the quote clearly outlines any extra coverages you might need. Understanding each type of coverage is essential to evaluating which protections are necessary for your business type and how they impact your overall premium.
Need a Quote? An agent will use their expertise to provide a custom quote for insurance coverage that fits your needs.
Policy Limits: Balancing Protection and Premiums
Russo describes policy limits as the maximum amount an insurer will pay for a covered loss. She recommends business owners consider both per-incident limits (the amount paid for a single claim) and aggregate limits (the total amount the insurer will pay during the policy period).
Consider your business’s risk level when setting limits—industries that face high liability risks, like construction, might benefit from higher limits. Balancing these limits with your budget ensures you’re covered for potential claims without overpaying for insurance.
What is a Deductible?
A deductible is the out-of-pocket amount before insurance coverage kicks in for a claim. Typically, the higher your deductible, the lower your premium. However, Russo stresses that higher deductibles mean you’ll have more immediate financial responsibility in the event of a claim.
- High Deductible: Lower premium but more out-of-pocket cost when filing a claim
- Low Deductible: Higher premium but less to pay during a claim
For example, if you choose a $1,000 deductible on your commercial property insurance and file a claim for $10,000 in damages, you would pay the first $1,000, and the insurer would cover the remaining $9,000. Striking a balance between affordable premiums and manageable deductibles is crucial.
Exclusions and Endorsements to Your Business Insurance Quote
Endorsements are add-ons that customize a standard policy to include additional coverage. For instance, a basic commercial property insurance policy might not cover earthquake damage, but an earthquake endorsement would provide this protection.
Conversely, exclusions are provisions that limit or eliminate coverage for certain situations, conditions, or items. Understanding exclusions is vital. Russo mentions that these are often the most overlooked part of insurance policies and can lead to unexpected expenses if you don’t know what’s not covered.
| Common Exclusions | Common Endorsements |
| Specific natural disasters like floods, earthquakes, and hurricanes may require separate endorsements. | Flood or Earthquake endorsements are essential in high-risk areas. |
| Cyber attacks are often not included in typical business insurance policies. | Data breach or cyber liability riders are crucial for businesses that handle sensitive customer data. |
| Equipment breakdowns due to events like electrical arcing or mechanical breakdown are often excluded from business insurance property coverage. | Equipment Breakdown coverage can cover repairing or replacing essential machinery or equipment if it fails. |
Finding the Best Fit
Before purchasing your business insurance package, evaluate multiple quotes. Russo emphasizes comparing more than just the premium. Look at the coverage types, limits, deductibles, exclusions, and insurer’s reputation.
Did You Know? “Looking at A.M. Best ratings is a great resource for finding reputable carriers,” Russo says. “You’ll want to make sure they have an A- or better to ensure they’re financially viable.” Central Insurance earned an A.M. Best Financial Strength Rating of “A” (Excellent) with a “Stable” outlook in 2024—a rating many organizations were not able to achieve, considering the difficult state of the industry.
Deconstructing your business insurance quote helps you make an informed decision about your coverage. By understanding each part of the quote, you can balance your budget with adequate protection for your business. If needed, take the time to review and ask questions about your quote. Consulting an insurance professional can help you secure a policy that meets your unique needs, ensuring your business’s peace of mind and long-term security.
Central offers tailored coverage options designed to meet your business’s specific needs. We understand business owners’ challenges and are committed to providing comprehensive protection that safeguards your investments. With Central Insurance, you can confidently navigate business insurance, knowing you have the necessary protection and excellent customer service to support you when you need it most.
