How much should small business insurance cost?

That's the million-dollar question for any new business!

The short answer is: The cost for a small business insurance package can range anywhere from $400 to over $3,000 per year, depending primarily on your industry and the policies you choose.

Because your two businesses (casual labor/handyman and high-risk light installation) have very different risk profiles, your cost will be determined by how your insurer classifies the high-risk work (the lights) and the amount of payroll you allocate to it, as we discussed earlier.

Here is a breakdown of average costs for common small business policies, followed by the key factors that will specifically determine your premium.

💰 Average Monthly Cost by Policy Type

While the cost is highly variable, here are the typical median and average monthly costs for the most common small business insurance policies:

Insurance PolicyAverage Monthly CostAverage Annual CostWhat It CoversGeneral Liability (GL)$40 – $70$480 – $840Third-party claims of bodily injury (e.g., a client slips) or property damage.Business Owner's Policy (BOP)$55 – $120$660 – $1,440Bundles GL, Commercial Property, and often Business Interruption into one lower-cost package.Workers' Compensation$45 – $130+$540 – $1,560+Mandatory coverage for employee injuries. Cost is based on payroll and classification risk (e.g., high for construction, low for office work).Professional Liability (E&O)$50 – $75$600 – $900Protects against claims of negligence, errors, or mistakes in professional services/advice.

Note: The cost of Workers' Compensation for your Christmas light business could be much higher than these averages due to the high-risk "working at heights" classification you mentioned.

📈 Key Factors Driving Your Insurance Cost

The premium is a reflection of your business's risk exposure.1 The insurance company will assess the following factors, which will directly impact your quotes:

1. Industry Risk (The Biggest Factor)

• High Risk = High Cost:2 Industries with greater exposure to physical accidents, like Construction, Roofing, Light Installation (working at heights), or food service, will pay significantly more for General Liability and Workers' Compensation than low-risk industries like consulting or web design.3

• Your Situation: Your Casual Labor business will likely fall into a lower-risk classification. Your Christmas Light business will fall into a high-risk classification (like Installation or Construction), driving up the rate for the payroll assigned to it.

2. Payroll and Number of Employees

• Workers' Comp: This premium is calculated as a rate per $\$100$ of payroll ($\text{Rate} \times (\text{Payroll} / \$100)$). The more employees you have and the more you pay them, the higher the total premium will be.4

  • Your Advantage: Since you only have three part-time workers for three months, assigning only that smaller, temporary payroll to the high-risk light installation code will keep your annual cost down significantly, compared to assigning your entire year-round casual labor payroll to that high rate.

3. Location

• State Regulations: Workers' Compensation laws and rates are set at the state level. States with high costs of living, high crime rates, or high exposure to natural disasters (e.g., floods, hurricanes) will have higher premiums.5

4. Coverage Limits and Deductible

• Higher Limits: Choosing a higher limit (e.g., 6$\$2$ million instead of 7$\$1$ million) will increase your premium.8

• Higher Deductible: Choosing a higher deductible (the amount you pay out of pocket before insurance kicks in) will lower your premium.9

5. Claims History

• A history of frequent or costly claims will signal high future risk to the insurer, leading to significantly higher premiums.10

💡 Strategy for Controlling Your Cost

The best way for a business like yours to minimize costs while maintaining compliance is to Bundle and Classify Correctly:

1. Get a BOP: For your casual labor work, bundling General Liability and Commercial Property into a Business Owner's Policy (BOP) is usually the most cost-effective way to get core coverage.11

2. Split Classification: As advised earlier, work with an insurance agent who will split your payroll between the low-risk classification (Casual Labor) and the high-risk classification (Light Installation). This ensures you only pay the high rate on the small portion of your business that is actually high-risk.

I can help you search for insurance providers or agents who specialize in contractors or high-risk trades, which may be beneficial given the nature of your light installation work. Would you like me to do that?