Short answer: Insurers generally multiply a rate for your business classification by an exposure basis, such as payroll, gross sales, square footage or number of units, then adjust for your limits, location, claims history, use of subcontractors and underwriting credits or debits. Many policies set a minimum premium. Because the exposure is estimated, the final premium may change after an audit.
The basic formula
(Exposure ÷ rating unit) × class rate × adjustments = premium (subject to minimum premium)
- Classification: describes what your business does, such as restaurant, plumbing contractor or retail store
- Exposure basis: what the rate is applied to
- Rate: the insurer's rate per unit of exposure for that class
- Adjustments: increased limits factors, territory, experience, schedule credits or debits
Common exposure bases
| Exposure basis | Often used for |
|---|---|
| Gross sales (per $1,000) | Retail, restaurants, manufacturers |
| Payroll (per $1,000) | Contractors, service businesses |
| Square footage (per 1,000 sq ft) | Offices, buildings, premises risks |
| Units | Apartments, hotel rooms |
| Admissions | Events and venues |
| Cost of subcontracted work | General contractors |
Factors that affect your premium
- Type of work: higher-risk operations, like roofing or bars, cost more than an office.
- Size: more sales or payroll means more exposure.
- Limits: higher per-occurrence and aggregate limits raise premium.
- Location: litigation environment and local risk.
- Claims history. See what are loss runs.
- Years in business and experience.
- Subcontractors: uninsured subs may be charged as your own payroll; insured subs with certificates usually cost less. See do subcontractors need their own insurance.
- Contract requirements: additional insured, waiver of subrogation and primary and noncontributory endorsements may add cost. See what is primary and noncontributory.
- Products and completed operations: manufacturers and contractors have this exposure. See what is completed operations coverage.
- Safety programs and risk management.
The premium audit
Your premium is often based on estimated sales or payroll. After the policy ends, the insurer may audit your actual figures. If they're higher, you'll owe additional premium; if lower, you may receive a return premium (subject to the minimum premium). See what is a premium audit.
Business owner's policies
Many small businesses buy general liability as part of a business owner's policy (BOP), which bundles liability and property coverage. BOP pricing works similarly but includes property factors. See what does a business owner's policy cover.
Why we don't publish average prices
General liability premiums vary enormously by classification, exposure, limits, location and insurer. Averages can mislead. A broker can get real quotes for your business.
How to manage your cost
- Choose the correct classification and describe your operations accurately
- Keep good records of sales, payroll and subcontractor costs
- Collect certificates of insurance from subcontractors
- Maintain a safety program and document it
- Choose limits that meet contracts without overbuying
- Report claims promptly and manage them well
- Compare insurers through a broker
Is general liability required?
Not by California law for most businesses, but leases, contracts and some licenses require it. See is general liability insurance required in California.
Common scenarios
A contractor's estimated payroll doubled during the year. Expect additional premium at audit.
A retailer's sales dropped. A return premium may apply after the audit, subject to the minimum.
A general contractor used uninsured subcontractors. Their costs may be added to the GC's exposure.
A client contract requires $2 million per occurrence. Higher limits or an umbrella may be needed. See commercial umbrella insurance.
Bottom line
General liability pricing is mostly a function of what you do, how much of it you do, and how well you manage risk. Describe your operations accurately, estimate sales or payroll realistically, keep subcontractor certificates on file and expect an audit. Doing these things well usually matters more than chasing a lower quote with a classification that doesn't fit your business.
Contact Alishahi Insurance or call (877) 711-4545. See general liability insurance.
Frequently asked questions
How are general liability premiums calculated?
Generally a class rate is multiplied by an exposure basis like payroll, sales, square footage or units, then adjusted for limits, location, claims and underwriting factors.
Why did I owe more after my general liability audit?
Usually because actual sales, payroll or subcontractor costs were higher than estimated.
Do uninsured subcontractors affect my premium?
Yes. Their costs may be added to your exposure.
Does a higher limit cost more?
Generally yes, using increased limits factors.
What is a minimum premium?
The lowest premium an insurer will charge for the policy, regardless of exposure.
Alishahi Insurance · 439 N Canon Dr, Penthouse, Beverly Hills, CA 90210 · (877) 711-4545 · CA License #4348151. General information only. This isn't legal, tax or financial advice or a coverage determination. Coverage depends on policy language and underwriting, and rules vary by state.