Home Business Insights & Advice How much should business insurance cost?

How much should business insurance cost?

by John Saunders
18th Aug 21 3:47 pm

Business insurance is not top of mind for most business owners, but it’s a critical component of risk management. Not having the right cover in place could leave a business at risk of covering a loss that reaches hundreds of pounds, thousands of pounds, tens of thousands of pounds, or even more.

But how much does it cost? According to insurance experts NimbleFins, business insurance premiums cost as little as £50 a year for some small, low-risk enterprises, but other businesses can pay many thousands of pounds a year. Ultimately, business insurance is priced as a function of perceived risk so costs will be very different from one business to the next.

Business insurance costs depend on a number of factors, from the industry to the types of cover required to the previous claims history of the business. How some of these factors affect the cost of business insurance is discussed below.

Industry

Since business insurance is priced by underwriters based on risk, the industry a business operates in is a major factor when calculating business insurance premiums. Take public liability insurance. A construction company presents quite a high risk to insurers, due to the risky nature of a construction site. A client or other third party, such as a delivery driver, could trip on an uneven surface on site or be injured by a sharp tool left out; or rubble could fall from a building and fall on a nearby vehicle, damaging it. In either case, the third party could sue the construction company for damages.

On the other hand, an accounting business does not present nearly as high of a risk to an insurer in terms of public liability. A client could slip on a wet floor, perhaps, but the risks are much lower for any type of office-based business than, say, a business involved in the building trades. As a result, public liability insurance costs would be much higher for the construction company than for the accountancy business.

Similarly, employers’ liability costs would be much higher for a construction business than an office-based business due to the relatively high chance of accidents and even death in construction jobs.

Types of business insurance

There are over a dozen different types of business insurance, to cover various liability risks, protect business property, guard against legal issues, protect employees and more.

Level of cover

Not surprisingly, the level of cover required will impact the cost of business insurance. However, costs don’t rise in line directly with increases in cover. That is, each additional £ of cover usually costs less. So, for example, increasing cover from £5 million to £10 million would not double the premium; an employers’ liability insurance plan with a £10 million limit would cost less than 2X the premium for a plan offering £5 million of protection.

Previous claims history

Underwriters strongly consider the previous claims history of a business before quoting for a new policy. This is because a company that has made a claim before could be a higher risk of future claims. As a result, claiming on business insurance could result in a business paying higher premiums in subsequent years.

How much does business insurance cost per year?

As discussed above, business insurance can cost anywhere form £50 a year to thousands of pounds a year for a small business. According to business insurance experts NimbleFins, the average cost of public liability insurance for a small business in the UK is £118 a year for a policy with £2 million of protection.

However, costs are highly variable from one business to the next and will depend on what types of cover are needed, the levels of insurance, the type of work done by the business, the size of the business, the previous claims history, and many other factors.

How much does business insurance cost per month?

A business that pays for business insurance monthly will typically pay a higher all-in cost due to the associated finance charges. The average cost of public liability insurance for a small business in the UK would be around £11 a month, assuming an interest rate of 22% APR. This figure represents the monthly cost for a policy with £2 million of cover. The average monthly cost of a £5 million public liability insurance policy would be around £13 per month.

To estimate how much an insurance policy would cost per month, take the annual quote and divide by 10. This will just provide a rough estimate of the costs (the actual figure will depend on the interest rate being charged) but it’s a simple calculation and will provide a guide for the monthly costs.

(Technically, to convert an annual premium to a monthly premium using a 22% APR, one would divide the annual premium by 10.68.)

Business insurance policies that are quite inexpensive may not be available with monthly payments. But business insurance policies of any significant value are often offered with the option of monthly payments. This helps a business spread out the costs of insurance over the course of a year.

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