The price you pay, how it’s calculated and how to lower it.
The price you pay, how it’s calculated and how to lower it.
A premium is insurance-speak for the price you pay for insurance coverage. Why they don’t just call a premium the “price of insurance” is unclear, but it’s what you have to pay to make sure you receive continued coverage from your insurance company.
Your premium is a separate insurance payment from your deductible. While you pay your premium in order to have coverage, you only need to pay your deductible when you file an insurance claim.
In other words, paying your premium keeps you covered; paying your deductible gets you closer to having your claim paid.
Many different factors come into play when calculating your premium amount. You’ll pay different insurance rates and premiums for the different types of insurance in your life, such as homeowners insurance, health insurance, life insurance or auto insurance. We’ll focus on small business insurance here.
The first factor depends on what type of coverage you’re looking for. General liability, workers’ comp, and commercial property, for example, will all cost different amounts for individual businesses depending on their operations.
Your industry is another major factor in determining the cost of your premium. As you can imagine, professions like fitness and construction will have higher general liability premiums than businesses like accounting or e-commerce because there is more risk for bodily injuries and property damage.
The next key component used to calculate your premium is the size of your business in terms of the number of employees, payroll and sales. More employees mean more people to cover, so your premium cost will rise.
Higher payroll and sales mean you’re doing more business, which means you’re (probably) interacting with more people — which means there’s a higher likelihood that an accident might occur.
The location of your business also affects your premium payment. If you’re based in a relatively sleepy town, your premiums will generally be lower than someone with an identical business located in the middle of a bustling city. The chances of something going wrong increase in a busy location, and your insurer charges accordingly.
In addition, especially when it comes to workers’ comp, different states have different laws relating to the amount of coverage you legally have to carry, which will affect how much you pay for your premium.
Your claims history also determines your premium. If an insurer looks at two similar businesses, but one has a history of filing many claims, that business is considered a bigger risk, likely resulting in higher premiums.
Your work experience also plays a part in how much you might pay for insurance. The number of years you’ve run a business in your field can impact your insurance rates.
For example, if you’ve been a carpenter for 15 years with no claims, you can expect to pay less than a carpenter who’s been in business for four years because you have more skills and knowledge of your field.
The final piece that determines your premium is how much coverage you want. A $1,000,000 policy will cost significantly less than a $5,000,000 policy.
Note: It’s important to provide the most accurate information about your business when you get a quote for insurance to make sure you get the coverage that is right for you and any claims are processed without delays.
You may think that the best way to lower your premiums is to shop around and find the cheapest coverage you can get. The danger with this thinking, especially regarding business insurance, is that you may find yourself exposed in ways you didn’t expect.
Different states have different legal requirements for some business insurance policies — the cheapest one may not meet those requirements. It could leave you inadequately covered and possibly in hot water with Johnny Law.
Bundling insurance plans is the simplest way to save money. For example, at NEXT, when you purchase two or more types of business insurance, you save 10% off both immediately.
Additionally, many insurers offer discounts when you pay for your policy in full. It may seem easier to budget by paying in installments, but if you can manage it, paying up-front can save you significantly (plus, policyholders don’t have to worry about paying for insurance again until next year).
Another way to lower your premium is to raise your deductible. If you’re willing to pay more should you need to file a claim, insurers generally offer reduced rates on their premiums.
For example, If you work in a higher risk industry such as construction, you probably already know that bodily injury accidents are a matter of when, not if. So it makes sense to have a higher premium and a lower deductible because you won’t have to pay as much out-of-pocket costs for those big expenses.
On the other hand, if you’re a certified public accountant (CPA) or an architect, injuries are highly unlikely. You may want to raise your deductible to lower your monthly premium cost and save money over the long term.
TIP: Here at NEXT, we offer low deductibles to all our customers. We don’t charge a deductible for our general liability insurance policies, so you won’t need to worry about it.
The best way you can save money on your premiums is to be safe! If you’ve had to file claims in the past, do your best to learn from them. Maybe you had an employee fall off a six-foot ladder while doing ceiling work. Perhaps it’s time to invest in taller ladders to keep your people safe and you from having to file a claim.
Anything you can do to reduce risk in your workplace will help decrease the chances you’ll have to file a claim. While many factors that go into calculating your insurance premium are difficult to change, you can make your workplace safer.
This not only reduces the number of claims you’ll file and deductibles you have to pay, it keeps your insurance rates down when it comes time to renew. That’s saving you money now and for the life of your business.
We’re 100% dedicated to small businesses; we tailor our insurance policies for more than 1,300 small business professionals so you can get the coverage you need at a price you can afford.
If you’re looking to lower your premiums, you can start a quote, customize your options and access your certificate of insurance online immediately — in about 10 minutes.
Business insurance is divided into different policies. We offer seven types so it's easy to design the coverage that fits your business.