Why use this calculator
Insurance is one of the few fixed costs a new business cannot skip, and it is often the one founders budget last. Landlords, clients and government contracts frequently require proof of general liability cover before you can sign, and in almost every US state workers compensation is compulsory once you hire.
Knowing the rough size of the bill before you shop stops two expensive mistakes: accepting the first quote because you have nothing to compare it with, and under-insuring to save money in a way that a single claim can turn into a business-ending loss. This estimator splits the premium into the part driven by sales and the part driven by staff, so you can see which lever moves your cost and test how growth, a claim or a change of coverage will shift the budget.
How to use it
- Enter annual revenue from the gross sales line of your last full year profit and loss statement.
- Enter the number of employees as full-time equivalents on payroll, which your payroll software or quarterly payroll tax filing will show.
- Choose the industry your insurer would put you in, which is usually the class code printed on an existing policy.
- Choose the coverage level you are pricing: basic liability only, standard with property, or comprehensive with professional and cyber cover.
- Finally select how many claims you have had in three years, which your insurer lists on its loss run report.
What each result means
- Estimated Annual Premium
- The indicative total for a year of cover at the level you picked. Use it to set a budget line and to spot a quote that is far out of range.
- Each Extra Employee Adds
- The extra yearly premium this estimate adds for every additional employee, mostly workers compensation style cover. Add it to wages and on-costs when you work out what a new hire really costs.
- Each Extra $100,000 of Revenue Adds
- The extra yearly premium for every additional $100,000 of annual revenue, from liability, property and professional covers that are priced on sales. Use it when budgeting for growth.
- Monthly Premium
- The annual premium spread over twelve months, which is what premium financing or a monthly direct debit would cost before any instalment fee.
- Revenue-Based Portion
- The share driven by sales: general liability, property and professional indemnity, all of which insurers rate on turnover as a proxy for exposure.
- Employee-Based Portion
- The share driven by headcount, mainly workers compensation. In physical trades this portion dominates and is where safety programs pay off.
- Premium per Employee
- Total premium divided by staff. Useful when costing a new hire, because each extra person adds this much insurance on top of wages.
- Premium as % of Revenue
- Insurance as a share of sales. Most small service firms land between 0.5% and 3%; construction and manufacturing run higher.
- Industry Risk Factor
- The two base rates applied for your sector before coverage and claims adjustments, so you can see why a trade costs more than an office.
The formula
Annual premium = (revenue x industry revenue rate + employees x industry rate per employee) x coverage multiplier x claims multiplier
The revenue rates are 0.4% for tech, 0.5% for services, 0.6% for retail, 0.9% for manufacturing and 1.2% for construction. The per-employee rates are $200, $300, $450, $1,000 and $2,000 respectively. The coverage multiplier is 0.7 for basic, 1.0 for standard and 1.5 for comprehensive. The claims multiplier is 1.0 for none, 1.15 for one claim and 1.35 for two or more.
Monthly premium = annual premium divided by 12
How this number is used in practice
Insurers price small commercial risks from two numbers more than any others: how much you sell and how many people you employ. General liability and product liability are usually rated per $1,000 of revenue, property on the value of what you own, and workers compensation per $100 of payroll by class code.
That is why a ten person software firm and a ten person roofing crew with identical revenue can see premiums that differ by a factor of five or more. The rates in this estimator are deliberately round mid-range figures; your state, your class code and your deductible will move the real number, sometimes a long way.
Claims history is the lever owners underestimate. A single paid claim typically lifts renewal pricing for three years, and a cluster can make standard insurers decline you altogether, pushing you into the more expensive specialty market. Many owners therefore pay small losses themselves rather than claim.
Bundling general liability and property into a business owners policy usually saves 10% to 25%, and raising the deductible to a level your cash reserves can absorb is often the fastest way to cut the premium without cutting cover. Always compare quotes on the same limits and deductibles, not on price alone.
Worked examples
A professional services firm with $500,000 revenue, 10 staff, standard cover and no claims
About $5,500 a year ($458.33 a month), 1.10% of revenue
A construction firm with $1,000,000 revenue, 25 staff and comprehensive cover
About $93,000 a year, of which $75,000 is the employee-based portion, 9.30% of revenue
A software company with $2,000,000 revenue, 15 staff, standard cover and one recent claim
About $12,650 a year, or $843.33 per employee
When people use it
- Setting an insurance budget line in a startup business plan
- Checking whether a broker quote is in a sensible range before you sign
- Costing the insurance impact of hiring more staff
- Comparing basic, standard and comprehensive cover side by side
- Showing a lender or investor that insurance has been priced into the forecast
Tips
- Ask for a business owners policy that bundles liability and property. It is usually 10% to 25% cheaper than buying them separately.
- Raise the deductible to an amount your cash reserve can comfortably pay. It is often the quickest premium saving available.
- Check your workers compensation class codes every renewal. Office staff misclassified under a trade code can cost thousands.
- Pay small losses yourself where you can. A claim usually lifts renewal pricing for three years.
- Get at least three quotes on identical limits and deductibles, or the comparison is meaningless.
- Review cover whenever revenue or headcount changes by more than 20%, because audits will back-bill the difference.
What it assumes, and where it stops being accurate
- Rates are indicative US averages for small businesses, not a quote. Individual insurers, states and class codes vary widely.
- Workers compensation is really rated on payroll by class code; this estimator uses a flat cost per employee for each industry as a proxy.
- Assumes typical policy limits of $1 million per occurrence and moderate deductibles. Higher limits or umbrella cover add to the premium.
- Ignores commercial auto, which is rated per vehicle and driver and should be quoted separately.
- Claims loadings are simplified multipliers. A large or severe claim can raise pricing far more, or lead to non-renewal.
Terms used on this page
- General liability
- Cover for third-party injury and property damage caused by your business operations or premises.
- Workers compensation
- Compulsory cover in most states that pays medical costs and lost wages for employees injured at work.
- Business owners policy
- A bundled package of general liability and property insurance sold to small businesses at a discount.
- Deductible
- The amount you pay on each claim before the insurer pays anything.
- Class code
- The industry classification an insurer uses to set the base rate for your type of work.
Questions people ask
- Which business insurance policies are the most common?
- General liability, commercial property, workers compensation, professional liability (also called errors and omissions) and commercial auto. Many small firms buy a business owners policy, which bundles general liability and property at a discount, and add workers compensation and professional liability separately.
- How accurate is this estimate?
- It is a budgeting range, not a quote. Real premiums depend on your state, class code, policy limits, deductibles, claims history, security and safety measures, and the insurer's appetite for your trade. Treat a quote that is more than about twice this estimate, or less than half, as a reason to ask why.
- Is workers compensation compulsory?
- In almost every US state it is required once you have employees, although thresholds and exemptions for small headcounts or owners differ by state. Texas is the notable exception where private employers can opt out, but doing so removes important legal protections. Check your state labor department rules.
- Do I need insurance if I run the business from home?
- Yes. Homeowners policies usually exclude business activity, business property and injuries to clients who visit for work. A home-based business should at least carry general liability and, if it gives advice or professional services, professional liability. A home business endorsement can sometimes cover the equipment.
- Why does construction cost so much more to insure?
- Physical work means more frequent and more severe injuries, so workers compensation rates per $100 of payroll are many times those for clerical work. Construction also carries higher property damage and completed operations liability risk. That is why the employee-based portion dominates the premium for trades.
Use this with
Business Insurance Estimator answers one part of the question. These pick up where it stops: Employee Cost Calculator, Hiring Cost Calculator, Break-Even Calculator and Profit Margin Calculator.
Where these figures come from
Figures and rules on this page follow United States federal rules.
- U.S. Small Business Administration: Get business insurance. Types of business insurance and when each is required
- Insurance Information Institute. Background on small business and workers compensation insurance
- U.S. Department of Labor: Workers' compensation. State workers compensation requirements
Business Insurance Estimator produces an estimate for general information. It is not financial, tax, medical, legal or engineering advice. read the full disclaimer. Spotted a wrong number? Report it and it gets fixed. The form picks up this calculator and the inputs you used.