Every entrepreneur has the dream of being a successful businessperson who gets to work for themselves and make their own rules. While there are many great perks associated with going into business for yourself, it’s not without its challenges. Everybody knows that you have to spend money to make money, but did you realize that the more money you make the more you’re going to have to spend? For example, as your enterprise grows, your insurance premiums will likely rise accordingly.
How insurance premiums are calculated is largely based on a complex series of variables, but is mostly based on risk exposure. The reason your insurance premiums are increasing as your enterprise grows is because a bigger organization has a bigger potential for risk—plain and simple.
How the Cost of Business Insurance is Determined
Insurance companies hire actuaries to estimate the cost of insuring a particular business based on the amount of risk that business will likely experience. When factoring how much risk a business faces, the insurance companies are looking at the likelihood of loss and the potential cost of filing a claim. For example, a business with a high risk of fire (such as a restaurant) and an expensive inventory will be more expensive to insure.
Ways to Reduce the Cost of Business Insurance
There are a ton of costs related to keeping a business operating, it makes sense to save money wherever possible. While business insurance premiums are necessary for responsible entrepreneurs, a pragmatic owner can still get the best value for their money. The same way you look for the best price of ingredients or supplies as part of your procurement process, you should be looking at different business insurance providers. Online platforms like CoverHound allow you to input all your business-specific information and compare quotes from different insurers.
Here are some other factors that may help keep your premiums low:
Minimize Risk: Business insurance cost is based on risk projections, which means you may be able to save money by reducing the overall amount of risk your business will face. A safety training program or risk management review will help reduce the likelihood of filing a claim, thus ensuring rates are kept at a minimum. Remember, preventable losses are avoidable losses.
Evaluate Policies Annually: When your policy is up for renewal, it may seem like a simple decision to just let the same coverage roll into the next year. If your business hasn’t grown much, that may seem like what you signed up for the previous year would be good enough. Take the time to reevaluate your policy, speak with your agent and ask questions. Make sure that this is absolutely the right coverage.
Pay Your Premiums Up Front: If you’ve been paying into a payment plan, you’ve likely been paying for the convenience. Over the course of a fiscal year, you will pay more on each monthly installment than you would if you just pay the total cost up front. If it seems too difficult, remember that it is protecting your company from any potential hazards that may surface. If you’re suffering from a poor cash-flow, you may want to continue paying monthly until the beginning of the next policy, which you would ideally pay up front.
Take your time and do business with someone that you trust and has great references. The most important part of saving money on business insurance premiums is to do your research and find a company that will give you most benefits for the best value.