If you’re launching a startup, having the proper business insurance in place from its early stages is essential. Not having adequate coverage can leave your young business open to risks and lawsuits that could financially suffocate your burgeoning venture.
Types of Business Insurance Startups Need
A startup likely faces multiple risks, such as injuries, lawsuits and claims of professional mistakes. The best small business insurance policy for startups contains a mix of coverage types to cover a wide range of potential problems.
A business owners policy (BOP) is a good option for your startup. A BOP contains three important coverage types, and it’s usually cheaper than buying each coverage separately. Here’s what’s included with a BOP.
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General Liability Insurance
General liability insurance covers accidental property damage and injuries to others. For example, if a client trips on a rug while visiting your office, your general liability can pay for their medical expenses. It also covers your legal costs if you get sued because of an accident.
General liability insurance also covers other types of problems, including copyright infringement, reputational harm and advertising injury.
Commercial Property Insurance
Commercial property insurance covers the physical location of your startup and your business property for problems like theft, vandalism, severe weather and fire. This includes items like your computers, office furniture, tools, supplies and inventory.
Business Interruption Insurance
If you can’t temporarily open your startup due to a problem covered by your policy, like a fire, business interruption insurance covers your lost income. It also covers other expenses, like the cost of moving to another office location temporarily.
Business interruption insurance is also known as business income insurance.
Other Types of Small Business Insurance Types
While a BOP can be the foundation to your startup’s insurance plan, you can add more types of small business insurance on top of it to address your industry’s risks. Here are some to consider.
Commercial Auto Insurance
If you’re driving a vehicle such as a car, truck or van for your startup, you’re going to need a commercial auto policy. For example, if you drive a car to meet with clients or use a van to transport materials and supplies. Your personal car insurance policy won’t cover work-related accidents.
A commercial auto policy contains several different coverage types. Here are some common coverages:
- Bodily injury liability. This pays for accidental injuries you or your employees cause to others. It also covers your legal costs if you get sued because of an accident.
- Property damage liability. This pays for accidental property damage you or your employees cause to others. For example, if you visit a client’s home and accidentally back into their fence, this coverage will pay for repairs.
- Combined single limit (CSL). This coverage uses only one limit for claims involving property damage and injuries to others.
- Personal injury protection and medical payments. This pays for you and your employees medical expenses, no matter who is at fault for the car accident.
- Collision insurance. This pays to repair or replace your startup’s work vehicle if you or an employee get into a car crash.
- Comprehensive insurance. This pays to repair or replace your startup’s work vehicle for problems like fire, floods, falling objects, severe weather, collisions with animals, vandalism and theft.
- Uninsured motorist (UM)/underinsured motorist (UIM) coverage. If someone without car insurance or not enough insurance crashes into your work vehicle, this pays for you and your passengers’ medical expenses. In some states, you can add UIM to pay for damage to your work vehicle caused by an uninsured driver.
Commercial Umbrella Insurance
If you need an extra layer of coverage on top of your general liability insurance, you’ll need to buy commercial umbrella insurance. It kicks in when your general liability limits are exhausted. For example, if your startup gets sued for $1 million and your general liability limit is $500,000, your umbrella policy would cover the $500,000 shortfall.
Cyber Liability Insurance
Cyber liability insurance covers your startup from data breaches and cyber threats related to internal data and computer systems. This data might include Social Security numbers, driver’s license numbers, account numbers, customer information and credit card numbers.
Cyber liability insurance pays for expenses like identity recovery, data recovery and investigative services. It can also cover your business partners and customers for expenses like customer notifications, legal fees and settlement costs.
Directors and Officers Insurance
Directors and officers insurance covers the folks who serve as your startup’s directors and officers for lawsuits such as causing a financial loss, mismanaged funds, theft of intellectual property, copyright infringement and misrepresentation of company assets.
Employment Practices Liability Insurance
Employment practices liability insurance covers legal costs for claims of wrongful termination or violation of employees rights. This includes judgments and settlements.
Errors and Omissions Insurance
Errors and omissions insurance (E&O) covers claims of professional mistakes, even if the claim has no merit. For example, if a client sues your startup due to inaccurate advice that led to a bankruptcy, your E&O insurance will pay your legal costs. Other examples of professional mistakes include negligence, misrepresentation, and violation of good faith and fair dealing.
E&O insurance is also known as professional liability insurance.
Workers Compensation Insurance
Workers compensation insurance covers workplace injuries and illnesses. It pays for medical expenses, a portion of lost income and other costs, such as physical therapy. You are required to have workers comp in most states, even if you have only one employee.
Why Do Startups Need Insurance?
Startups need business insurance because they’re vulnerable to many of the same risks as larger, more established businesses, such as lawsuits, accidental injuries, theft of business property and cyber attacks. Without small business insurance, your startup would have to pay out of pocket for lawsuits and claims, which could be financially devastating.
For example, if an employee in your startup provides inaccurate or misleading information to a client that results in a financial loss, you could face a lawsuit. Having a robust business insurance policy with errors and omissions insurance would cover your legal costs, judgments and settlements.
How to Choose the Best Business Insurance for Startups
A smart small business insurance plan for your startup addresses the types of risks that affect your company and industry. For example, if your startup has a board of directors, you’ll want to get directors and officer insurance to cover lawsuits such as misrepresentation of company assets.
Here are some tips for choosing the best business insurance for startups:
- Bundle your policies. A BOP is a good foundation. It contains three essential coverage types, and it’s usually cheaper than buying each coverage separately. You can add to your BOP to fit your startup’s needs, such as workers comp and professional liability insurance.
- Compare business insurance quotes. Not all insurers price their policies the same, so make sure you get startup business insurance quotes from multiple insurers to find a good price.
- Periodically reassess your startup’s needs. As your startup evolves, your business insurance needs will also change. You can add more coverage types to address any additional risks that your startup may face. For example, if you add a company car, you’ll want to get commercial auto insurance.
How Much Does Business Insurance Cost for Startups?
The average cost of general liability insurance for a startup is $42 per month, according to Insureon. The average cost for other types of business insurance, such as professional liability insurance, is $61 per month and $45 per month for workers compensation insurance.
Your startup business insurance costs will depend on factors such as:
- The size of your startup.
- Where your startup is located.
- The number of employees.
- Revenue.
- Types of services provided.
- Claims history.
- The types of coverage you buy.
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Startup Insurance Frequently Asked Questions (FAQs)
How can I save money on business insurance?
Your startup can save money on small business insurance by comparing business insurance quotes from several different companies. That’s because business insurers don’t price their policies the same.
Another good way to save is by bundling your insurance policies. A business owners policy (BOP) bundles three coverage types: general liability insurance, business income insurance and commercial property insurance. It’s usually cheaper to get a BOP compared to buying each coverage type separately.
What other types of coverage do startups need?
In addition to a business owners policy, you’ll need to buy other types of business insurance to match your startup’s risk. For example, if your startup has employees, you need workers compensation insurance.
Other types of insurance your startup may need include commercial auto insurance for company cars, cyber liability insurance for cyberattacks and professional liability insurance to cover claims of professional errors (such as inaccurate advice or failure to deliver a product on time).
