On average, most businesses pay around $1,000.00 per year for their CGL policy. However, the cost of an individual CGL policy depends on a number of factors, including the nature of your business, the location of your business, and the physical condition of your business assets. Underwriters take into account all of these factors in determining how much the premium will cost. One of the biggest factors that impacts price is the type of industry your business is in. If it is an inherently dangerous/ultrahazardous activity, the cost for the insurance can be significantly higher.
The cost of a CGL policy can range from $500.00 on the low end for a sole proprietor with no employees in a low risk industry and/or location to over $30,000.00 for multi-million-dollar coverage for a new construction builder in certain areas. The policy could cost even more for certain inherently dangerous/ultrahazardous activities. The cost depends on the type of policy and what type of business you are covering and the amount of coverage. There are things you can do to minimize costs when purchasing a policy and after you’ve purchased your policy the premiums may change if your business volume ends up being more than you predicted when you purchased the policy.
I. TYPE OF POLICY
The type of CGL policy you select will affect the cost. Policies that offer less coverage are less expensive. An Occurrence policy covers the business for any injury or damage that occurs while the policy is in effect. Even after the insurance policy is expired, if someone makes a claim that there was damage during the policy term the business is covered.
A Claims-made policy covers you for claims that occur during the policy period AND are reported during the policy period. The difference in cost between a claims-made policy and an occurrence policy can be significant. The Claims made policy also offers a choice to select special coverage that mitigates the risk for the insured for things that happen before or right after the policy expires but inevitably electing the special coverage increases the cost as well.
Special Coverage for claims comes in two types:
1) Prior acts coverage - The coverage starts at an established retroactive date before you buy the policy but must be reported to the insurer after the policy is purchased. It does not cover any claims that are known at the time the policy begins.
2) Run-off coverage - A standard Claims made policy gives the insured 30-60 days to report any claims for damages that occurred during the policy. If you purchase Run-off-coverage you can extend your reporting cut off time for years or even indefinitely.
For example, if you operate a gas station and someone slips and falls on your floor. After he falls, he immediately stands up brushes himself off and just walks out. You forget about it until 6 months later when you get notified, he has made a claim against you for negligence. To make things worse, you let your insurance lapse. If you purchased an occurrence policy you are covered because the incident occurred while you were covered. If you selected a claims made policy with no additional run off coverage your insurance policy will not cover you for the claim for damages. If you purchased a claims made with a one year run off period, you are covered. In addition to purchasing an occurrence policy you can select additional protections in a CGL above and beyond the minimum.
II. TYPE OF BUSINESS
New construction businesses often have high coverage costs because those businesses often do work on someone else’s property. If the business is engaged in an inherently dangerous activity there is a higher premium associated with insuring the business because of the increased risk of injury or damage to property. Some examples of inherently dangerous activities are demolition of buildings, keeping of wild animals, and transportation, storage or use of certain hazardous chemicals.
III. AMOUNT OF COVERAGE
Just like with any other insurance, the amount of your insurance policy’s limit of liability effects how much the insurance policy costs. The most popular general liability limit for businesses is the $1 million / $2 million policy.
A sole proprietor with no employees usually feels comfortable with the most popular general liability limit. Generally, businesses with more assets to protect have a higher limit of liability and therefore higher premiums.
Below is a quick ballpark of how much contractors liability insurance usually cost. The cost is affected by the size of the business either determined by gross sales or employee payroll, claims history and type of risk involved.
THE COST OF NOT HAVING INSURANCE:
The cost of not having insurance can be your entire livelihood. Nobody’s perfect. Most of us have witnessed an accident at a job site or at least, seen potentially hazardous conditions and unsafe worker conduct. A Commercial General Liability insurance policy (CGL) protects business owners from having to pay costly attorney fees, medical bills, and property damage resulting from claims of negligence.
Claims of negligence may arise out of your own acts or omissions as well as others involved in your business. Products liability, independent contractor’s liability, contractual liability, and advertising injuries such as libel, slander, claims of liability for infringement of another’s copyright, trademark, or slogan can all arise solely form someone else’s negligence. Remember, the CGL protects you not only against costly “claims” of negligence when you did nothing wrong but also protects your business if in fact you or someone involved in your business actually were found to be negligent in a court of law.
Slip and fall cases are an example that typically comes to mind when you think about protection from negligence claims in a business. The CGL offers Slip and Fall coverage for businesses that invite customers into their businesses. Conversely, if your businesses does work off site, on other people’s property. For example, the CGL covers any negligence that occurs in the operation of your business on other people’s property. Even after your work is complete, if something goes wrong later with your work that causes damages, the CGL has a Completed Operations Liability coverage that protects you against any claims for negligence.
Often, it’s not our own negligence we have to worry about. Sometimes it’s others that can cause your business to be liable even though you or anyone else in your business did anything wrong. A good example is a manufacturer who designs a defective product. When that product is ordered and stocked by a retailer the retailer is automatically liable for the manufacturer’s negligence if they sell the defective product to a consumer even though the retailer had no idea anything was wrong with it. Products liability imposes something known as strict liability, meaning liability applies even though there was no “wrong doing” on the part of the retailer. Strict liability is also common in inherently dangerous/ultrahazardous activities. Another example of being on the hook for someone else’s negligence is independent contractors’ negligence. Though it’s true independent contractors are not your agents and therefore there is no agency theory of negligence. This doesn’t shield the business owner from the claim that they were negligent in hiring the independent contractor in the first place. CGL covers business owners for the negligence of independent contractors by hiring legal representation for any claims of negligence arising out of independent contractor’s actions.
IV. MINIMIZING COST
The following strategies are useful for minimizing the cost of premiums.
V. CHANGE IN BUSINESS VOLUME
When you purchase CGL insurance your agent will ask you a series of questions about your business including an estimated projection of payroll, sales volume, number of employees, the subcontracting cost, number of claims etc. for the upcoming year. At the end of the year or at any time during the policy period the insurer has a right to do an audit to verify your actual business volume and compare them to what was projected in the application for insurance. The premium that you pay up front is a deposit for an estimated premium. If the actual numbers are greater than the projected numbers you will owe an additional premium for the difference.
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