How to shop for small business insurance

Step-by-step guide to buying small business insurance

The following steps will help you find and buy the right insurance policy for your business. 

Step 1: Assess your risks and determine which policies you need

Take note of what you are trying to protect. If you have employees, you likely need a workers’ compensation policy as required by law in most states. If you have a lease, the building owner may require a general liability policy to cover accidents and protect the building from risks such as fire. 

Work with an adviser to assess your company’s risks. You’ll want to get coverage to mitigate those risks. Note that precautions you take to minimize your risk,  such as installing a security system, can help reduce the cost of your insurance premiums. 

Step 2: Make a list of reputable companies 

J.D. Power, the data and analytics company, recently released its 2024 U.S. Small Commercial Insurance Study, which measures customer satisfaction. American Family, State Farm and Allstate came out on top, but the study looked at a dozen other carriers. You can use the list as a starting point for companies to consider. 

In addition to customer satisfaction, look for companies with good ratings from AM Best, which gauges the financial stability of a company and its ability to pay claims. Companies with an A++ rating are more financially secure. 

Also, take the time to read reviews on sites such as the Better Business Bureau and Trustpilot. Keep in mind that many people only write online reviews when something goes wrong. See if the company is responsive to feedback and tries to resolve the situation.

Step 3: Get apples-to-apples quotes and then compare rates

Insurance experts always recommend getting quotes from at least three insurers.

When reviewing each insurance company’s rates, make sure you’re comparing the same coverage options. If one company quotes general liability at $1 million and another quotes it for $100,000, you won’t know which company offers the best price until you closely look at the deductible amount, the policy limits, the exclusions – damage the policy won’t cover – and other items.

Step 4: Take note of intangibles

You want to work with a company that takes the time to get to know your business and properly assess its risk. Some people like working with a company such as State Farm, where one agent is assigned to your policy and is the point of contact for everything. You may also like the way that Travelers’ representatives take the time to explain the policy terms to you. Make sure you’re comfortable with the insurance carrier. 

Step 5: Choose your carrier

Now that you’ve done all the homework, it's time to choose the carrier. Remember that the best price isn’t always the best policy. 

Geoff Stanton, owner of Stanton Insurance in Waltham, Massachusetts, notes that you shouldn’t shop strictly based on price. He states, “I’ve seen too many businesses choose a policy based solely on cost, only to end up underinsured or with poor service when claims arise.” You need policies that do what you have paid for. 

And remember that insurance shouldn’t be a set-it-and-forget-it job.

Your business will fluctuate. It could take off and double or triple in size. At least once a year, take the time to reassess your needs and determine if your current policies still fully cover your buildings, vehicles, equipment and other vital resources. 

Understanding small business insurance

Small business insurance is a group of policies designed to protect your business from losses. 

For example, general liability insurance protects the business from third-party losses due to business operations – such losses include slip and fall accidents. Workers’ compensation covers the business if employees are hurt while on the job and pays medical expenses and lost wages to the injured employee. A commercial property policy protects the company’s assets from losses such as fire or theft. 

Without business insurance, a company would have to deal with losses using the company’s assets, such as savings or revenues. Most companies don’t have the type of assets to deal with major claims and would be in financial trouble if a loss claim was brought against it. Small business insurance protects the solvency of the business by paying high-dollar claims. 

How much does small business insurance cost?

The cost of your small business insurance policy will depend on several factors, such as the type of policy you get. Different policies have different risks and costs. Additionally, your location will have a major impact on cost since some areas have higher loss rates than others. The age and size of your company can also affect the cost of insurance. Larger companies will pay more for insurance than small ones because there is an increased probability of loss. 

Given all the above, here are some average prices. 

How to determine how much insurance your small business needs

Your small business needs at least enough insurance to cover the company's assets and annual revenue. But this is just a starting point. You’ll want to take into consideration your industry and the size of your business. The more risky your industry or bigger your business, the more coverage you’ll want to get. 

Remember, if you are underinsured, it is up to your company to make up the difference in a claim. That means that if you have $100,000 in general liability coverage and the claim is for $500,000, your company would be responsible for the remaining $400,000 in coverage. The good news is that double the coverage doesn’t mean double the premium. 

How to find the best insurance provider in your industry

Every insurance company has what it calls an appetite. The appetite is the desire for the carrier to insure certain industries. Some carriers won’t deal with high-risk industries, while others make their living doing so. You want to find a carrier that has an appetite for your company. This often means that not only do they insure your type of business, but they do it for a reasonable premium and understand the risks of the industry to handle risk mitigation and claims better. 

Common mistakes to avoid when buying small business insurance

Some things you want to avoid when shopping for small business insurance:

• Settling for the cheapest policy: The cheapest doesn’t mean it meets your business needs. Choose a policy that has the coverage you need from a company you trust. 
• Underinsuring or overinsuring: You want to have the right amount of coverage. Underinsuring leaves you exposed to financial loss. Overinsuring means you're paying premiums that won’t really pay dividends in a claim. Talk to your agent about getting the right amount of coverage.
• Forgetting to review your policy: Even though you’re busy, take the time to reassess your insurance policies and needs at least once a year. This will ensure that your policy reflects your current business needs. 
• Neglecting to provide accurate information: The information you give the insurance company must be correct. If it isn’t, you may be underinsured, or worse, you may have a claim denied for misrepresentation. 
• Failing to understand policy exclusions: Every policy has a list of exclusions worked into the policy contract. Ask your agent about exclusions and make sure you understand them and how to protect against them. 

What our expert says

Q: Should you shop for small business insurance based on price?

Geoff Stanton Owner of Stanton Insurance in Waltham, Massachusetts

"I’ve seen too many businesses choose a policy based solely on cost, only to end up underinsured or with poor service when claims arise,” he says. You need policies that do what you have paid for. "