As a new business owner, you are no doubt excited about starting your own company. But what happens if things don't go as planned? You need to protect yourself and your family from the financial fallout that can happen when accidents or disasters strike.
One of the ways you can do this is by purchasing insurance for your business—an investment that will pay off many times over. In this article, we will discuss some of the types of insurance that startups might want to consider purchasing, why it's important, and how much it might cost.
Who Needs Startup Insurance?
If you're launching a new business, you need startup insurance. It's that simple! If you are starting a small company, you may not have the capital necessary to insure your small business without going into debt. Plus, startup insurance protects the company you're working so hard to build.
Why Startups Need Insurance
The startup process is full of uncertainties. You may not know what's going to happen with your business, but you'll need insurance to protect yourself and the company that you have put so much time and effort into building up. The right insurance policy will help cover:
- Being sued for an employee injury
- The cost of repairing damaged property
- Injuries that may happen in your business
- Any errors or mistakes you make
- Credit monitoring for clients in the case of a cyberattack
Insurance companies offer a wide variety of policies to help cover small businesses from the risks they face.
Types of Business Insurance You May Need
There are a few different types of business insurance policies that we recommend for new startups to help get you started.
General Liability Insurance for Startups
General liability insurance is basic coverage that a startup will need—It's also one of the most comprehensive business insurance options. General liability insurance covers your potential legal responsibility for damages to third-party property or bodily injury to another person, including those caused by an employee acting within the scope of their employment with you. This means they'll pay medical expenses if someone is injured, and cover the cost to repair or replace their damaged items.
General liability also covers advertising injury, which is an injury to someone's reputation that you cause through lies or misstatements you're accused of making in an advertisement. This encompasses slander, libel, or copyright infringement (copying someone's intellectual property).
This policy can also include specific coverage for product liability. If someone you sell injures a customer, you can be held liable for that injury.
If you have a general liability policy, your insurance company will usually help cover legal expenses if you're sued (the cost of a lawyer, defense costs, legal fees, and settlements.)
Commercial Property Insurance
Commercial property insurance—also referred to as business property insurance—is typically designed to protect the buildings, fixtures, and equipment necessary for your business (think inventory, furniture, and personal property as well). You'll find that most commercial policies cover property damage from perils such as fires, storms, burglary and theft. Almost every property insurance policy will exclude flooding, so if you live in a flood zone, you may need to get an endorsement or a separate flood insurance policy.
Business Owners' Policy
A business owners' policy (BOP) is a type of insurance that bundles together a variety of coverages. Those coverages usually include general liability insurance, property insurance, and business interruption insurance. How does this benefit you? A BOP is often a more affordable way to purchase the coverage you need and is often cheaper than purchasing each policy separately.
Business Interruption Insurance
A business interruption policy will help cover your company if your place of business is damaged and you cannot operate. The policy is designed to cover some of your operating costs while you rebuild. This can include covering employee payroll, taxes, debt repayment, your lease, and even a portion of your lost income.
Commercial Auto Insurance
Commercial auto insurance typically covers accidents that happen when your car is being used to conduct business (delivering items or picking up supplies, etc.). It is typically required if your business owns the vehicles or they're being used for business purposes.
Professional Liability Insurance
Professional liability insurance—also referred to as errors and omissions insurance—covers you as an individual for any legal claims that arise from your professional actions. It can include coverage for negligence, professional errors, incomplete or unsatisfactory work, and things like libel/slander.
For example, if a client or customer is unhappy with the end product you provide and decides to sue you, this business insurance would provide you with a lawyer, cover court costs, and potentially paying out damages to the plaintiff. Professional liability is recommended for lawyers, architects, healthcare, and anyone that offers professional services.
Cyber Liability Insurance Coverage
Cyber liability insurance protects your business against data breaches, viruses, and cyber attacks. Cyber insurance is important not only for protecting a new/startup business from theft but also to make sure that they can continue their operations after an event like this happens. Cyber insurance carriers can help pay for credit monitoring for impacted clients. They may also help cover the cost to repair your reputation and even pay ransom demands to solve the cyberattack.
Workers' Compensation Insurance
Workers' compensation insurance covers the cost of medical treatment for your employees as well as lost wages if they are unable to work (If it's due to a work-related injury or illness). Workers' compensation insurance can also help protect your business from being sued by an injured employee.
It is a required type of business insurance in most states as soon as you hire your first employee. You may face hefty fines if you choose not to provide it to your employees. Many states allow you to purchase this coverage through a private insurer or a state fund. Many employers also opt to provide their employees with health insurance and disability insurance.
Employment Practices Liability Insurance
Employment Practices Liability Insurance (EPLI) covers what happens if an employee commits some type of negligent act, which leads to personal injury. This includes discrimination against employees or customers, sexual harassment, wrongful termination, etc. If you're sued for any of these reasons, the EPLI policy can provide you with a lawyer, cover legal fees, and pay settlement costs.
Directors and Officers Insurance
Directors and Officers Insurance protects directors, officers, managers, and other top executives from personal financial liability related to their company's operations. This is one of the most important types of business insurance for startups because it covers a director or officer who may be sued by shareholders due to poor management decisions that could lead the company to financial losses. This policy can also help attract potential investors.
Key Man Insurance
Who Needs Key Man Insurance? Startups with key positions that are critical for running day-to-day operations and achieving long-term goals need this coverage. This policy is a type of life insurance policy that protects a company from the loss of its most important employees, like CEOs or Directors. If they pass away or are permanently disabled, key man insurance will cover the cost of replacing them.
How Much Does Business Insurance for Startups Cost?
Insurance for startups can cost anywhere from $600 to thousands of dollars a year. Your premium costs will depend on:
- The type of insurance you need
- The deductibles and policy limits you choose
- The size and location of your business’s operations
- How many employees you have
- The industry your business is in
The length of time you've been in business and whether or not you have a claims history is usually considered. Because the business insurance you're seeking is for a startup, those won't necessarily factor in.
We recommend working with an insurance agent who is experienced working with business startups. They can help you determine the commercial insurance policies you need, share the insurance costs, and help you find insurance that fits your exact needs.
Get a Free Quote for Business Insurance Coverage
We understand how difficult it can be to understand insurance for startups. Our goal at Tivly is to help you get the right business insurance coverage at an affordable price. The process is fast and easy! Complete the form at the top of the page and someone will reach out to you. Or, give us a call at 877-907-5267.
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