Small business insurance costs can fluctuate widely and are influenced by factors like business size, industry, location and coverage type. For example, a general liability insurance policy for an LLC with 20 employees might run around $67 per month. In contrast, a sole proprietor might secure the same coverage for $28 monthly. Rates are also different depending on the types of insurance you purchase; for instance, an LLC with 20 employees could pay $67 monthly for general liability insurance coverage, while workers' compensation and professional liability insurance would cost the same business $168 and $706, respectively. Understanding how these costs vary can help business owners find the most appropriate and cost-effective insurance coverage available.

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Average Small Business Insurance Costs

Small business insurance costs vary depending on the specific type of coverage being purchased. Common types of business insurance that most business owners need include general liability, workers' compensation and professional liability insurance. Each caters to distinct areas of business risk and carries different costs. Depending on the nature of your operation, you might need only one type of these coverages or all three.

View the average cost of each insurance type in the table below to get a clearer picture of potential insurance expenses. Workers’ compensation insurance is typically only required for employers, which is why the table doesn't include workers’ comp cost data for a business without employees.

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Average Cost of General Liability Insurance

Employee count is a significant factor in general liability insurance costs, reflecting the increased potential risk associated with a larger workforce. For example, a sole proprietor without employees typically pays $28 per month for a general liability insurance policy with a $2 million aggregate limit, a $1 million per occurrence limit and no deductible. In contrast, an LLC with 20 employees will pay around $67 monthly for the same coverage.

General liability insurance is an essential safeguard against common business risks such as bodily injuries, property damage and advertising injuries. This coverage offers critical financial protection for small business owners, helping manage potential legal costs and payouts resulting from unforeseen incidents.

Average Cost of Workers' Comp Insurance

While workers' compensation insurance requirements differ from state to state, this coverage is required for most businesses with employees. For an LLC with 20 employees, workers' compensation insurance costs around $168 per month. This cost represents a policy with a $1 million total policy limit, a $1 million per accident limit, and a $1 million per employee limit.

Workers’ compensation insurance provides coverage for job-related injuries or illnesses, offering benefits for medical expenses, lost wages and rehabilitation costs. It can also provide a death benefit to the dependents of an employee who dies from a work-related incident. Workers' comp not only protects the health and well-being of employees but also safeguards businesses from potential lawsuits related to workplace injuries. This coverage can be a key part of risk management for any company with employees, ensuring a safer and more secure working environment.

Average Cost of Professional Liability Insurance

For a sole proprietor with no employees, professional liability insurance costs $80 per month, on average. In contrast, an LLC with 20 employees will likely pay $706 per month. These costs reflect a policy with a $1 million per occurrence limit, a $1 million aggregate limit and a $5,000 deductible.

Professional liability insurance, also known as errors and omissions (E&O) insurance, is often necessary for businesses that provide professional services or advice. It covers legal fees and damages in the event that a business is sued for negligence, errors or omissions in the course of their professional services. This insurance can help preserve the reputation and financial stability of a business.

What Factors Affect Small Business Insurance Costs?

The cost of small business insurance is influenced by several factors, including your company's industry, size and location.

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Being aware of these factors can help you more effectively understand your small business insurance costs. Working closely with an insurance provider could also help you gain a better understanding of how these factors influence your premiums and identify opportunities to mitigate risks and control costs.

Tips for Managing Small Business Insurance Costs

As a small business owner, there are several steps you can take to manage your insurance costs effectively:

1

Understand your risk

Understand the specific risks associated with your industry and business operations. This knowledge will help you choose the right types and amounts of insurance coverage, preventing you from over or underinsuring your business.

2

Choose appropriate coverage limits and deductibles

Higher coverage limits and lower deductibles typically result in higher premiums. However, be careful not to skimp on coverage just to save money. Consider your risk tolerance and financial capacity to cover losses when setting your coverage limits and deductibles.

3

Manage workplace risks

By implementing risk management practices, such as safety protocols and employee training programs, you can reduce the likelihood of claims and potentially lower your premiums.

4

Maintain a clean claims history

Insurers often charge higher premiums to businesses with a history of claims. Therefore, managing risks effectively to avoid claims can help keep your premiums down.

5

Shop around

Insurance premiums can vary significantly among insurers. Consider getting quotes from multiple insurance companies to ensure you're getting the best deal. Additionally, an independent insurance agent can be a valuable resource in this process.

6

Review your policy every year

As your business changes, so do your insurance needs. Regularly review your policy to make sure it still provides adequate coverage. You might find areas where you can reduce coverage or increase deductibles to save money.

By taking these steps, you can have more control over your small business insurance costs, ensuring you have the coverage you need at a price that fits your budget.

Small Business Insurance Cost FAQs

Understanding the cost of business insurance can help you manage your business's financial health and protect against potential risks. The questions below aim to clarify important aspects of business insurance costs, providing you with the information needed to make informed decisions about your coverage needs.

The cost of business insurance varies based on the type of coverage. For instance, an LLC with 20 employees can expect to pay monthly premiums of $67 for general liability insurance, $168 for workers' compensation insurance and $706 for professional liability insurance. However, bundling multiple insurance policies together with the same provider can often lead to discounts, saving businesses money.

The cost of a general liability policy with a $2 million aggregate limit, a $1 million per occurrence limit and no deductible varies by business type. A sole proprietor without employees may pay about $28 per month, while an LLC with 20 employees could expect to pay around $67 monthly.

The monthly cost of a professional liability policy with a $1 million per occurrence limit, a $1 million aggregate limit and a $5,000 deductible differs by business. A sole proprietor without employees might pay $80, whereas an LLC with 20 employees could expect to pay $706.

As a business owner, determining your insurance needs involves understanding your industry's risks, the nature of your operations and the value of your assets. You should also consider any legal or contractual requirements for insurance. Consulting with an experienced insurance agent can provide valuable guidance in this decision-making process.

Yes, business insurance is typically tax deductible. Premiums paid for business insurance are generally considered a necessary business expense and can be deducted from your taxable income. However, it's always advisable to consult with a tax professional to understand specific tax implications for your business.

About Melissa Wylie


Melissa Wylie headshot

Melissa Wylie is a Content and SEO Manager at MoneyGeek. Melissa has worked in the financial content space since 2018 and has spent much of that time focused on all things small business.

Prior to joining MoneyGeek, Melissa held SEO positions at Bankrate and LendingTree. Melissa’s work has also appeared on LendingTree-owned websites ValuePenguin and MagnifyMoney.

Melissa began her career at American City Business Journals in 2015 as a reporter for the company’s women-focused publication Bizwomen. Melissa has a Bachelor of Arts in Journalism from the University of North Texas. Melissa relies on her foundation in journalism to craft content that simplifies complex financial topics to help everyone feel confident when making decisions with their money.

Melissa's other work can be read on LendingTree and Bizwomen.