What Is a Business Insurance Premium? | Insureon (2024)

A premium is the price you pay to an insurer for your small business insurance.

What is an insurance premium?

A premium is the cost of your small business insurance protection. You pay it initially when you purchase your coverage and then periodically to keep your insurance active. Premiums can be paid in full when you start your policy or through recurring monthly payments.

Why is it important to keep paying your insurance premium?

If you don’t pay your insurance premium on time and before your grace period expires, your insurer may cancel your coverage. This will leave your business exposed financially if it suffers property damage, a lawsuit, or another insurable event.

By paying your premium for insurance policies, such as general liability or commercial property, you will have a financial backstop in place to protect your business against the potentially devastating impact of a major incident.

Is a premium the same as a quote?

An insurance premium is not the same as an insurance quote. A premium is the actual cost of your policy, which an insurer determines through a process called underwriting.

A quote is an initial estimate of your cost based on your answers to limited questions about your business. To receive your actual cost or premium, you need to complete a more detailed insurance application.

You can compare insurance quotes from top U.S. carriers for free online with Insureon. Start an application today.

What factors determine the premium you’ll pay for insurance?

To determine your premium amount, your insurance company considers what type of small business insurance you wish to buy and how much coverage you are requesting.

The insurer will collect information about your business to determine your exposure to risk. For example, if you’re buying commercial property insurance, the insurer will want to know several details about your business, including:

  • Type of building you’re insuring
  • Location of your property
  • Condition of your property
  • Business personal property
  • Type of HVAC system
  • Fire protection / security systems

The insurer will also consider your insurance claim history. It will seek to determine whether you’ve used your insurance frequently over the years. If so, you could be considered a costly business to insure, meriting a higher premium.

Each type of insurance has different factors to determine pricing. For example, the cost of general liability insurance is influenced by at least eight factors and several considerations will affect your premium for commercial auto insurance.

Who calculates your insurance premiums?

Insurers typically employ actuaries to make premium calculations. Actuaries often major in business or quantitative fields as undergraduates. They take nine intense actuarial exams over a six- to nine-year period. If they pass, they become a certified actuary.

Does an insurance premium always stay the same?

Your premium will remain the same for the entire policy period. However, when your coverage comes up for renewal, your insurer may opt to increase it.

Your carrier could increase your premium due to claims prior to your renewal or because of financial pressures caused by a catastrophic event or another widespread insurable event.

However, in many states, insurance commissioners have the power to constrain premium hikes. By statute, they require insurers to file their premiums for approval before applying them to their customers.

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Insureon helps small business owners compare commercial insurance quotes with one easy online application. Start an application today to protect your business against legal liabilities.


May 6, 2022

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What Is a Business Insurance Premium? | Insureon (2024)
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