Types Of Insurance Every Startup Company Needs To Have

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Running a startup entails having too many items on the to-do checklist and having time constraints and far few personnel to handle the various tasks. With this in mind, entrepreneurs (and their small team if there is one) are left with little time to spare. And in the midst of all the hassle and sometimes confusion, entrepreneurs will inadvertently forget, overlook, or simply ignore the importance of getting insurance coverage.

If you’re currently running a business or planning to start one soon, it’s vital that you prioritize getting an insurance plans for your business. Sure, paying for insurance will require money from your business, but the benefits you’ll receive outweigh these costs. In fact, insurance can become your business’s safety net during emergencies and help your business thrive when these emergencies occur. 

Moreover, as many cases have shown, insurance can play a huge role in determining whether a startup succeeds or fails. With that in mind, herein we will explore some of the must-have insurance coverage that every startup should have.

#1. Comprehensive General Liability Insurance – Better known by its acronym, CGL, comprehensive general liability insurance is a type of insurance coverage should be taken up by every start so as to protect their assets in case a claim results from advertising injury, third party bodily injury, property damage, or alleged to personal property.

Costing about $500-$3000 per annum, this particular coverage may seem expensive for many startups running on a tight budget. However, the nature and value of the coverage more than justify the paying for this type of coverage. For starters, a general liability claim may cost upwards of $1 million, money which a startup might not be comfortable forking out. Importantly, the coverage also requires the insurance company to provider their CGL customers with legal defense when a claim is made.

#2. Directors And Officers Liability Insurance – For many startups, survival is dependent on taking risks and pushing the boundaries of innovation. This means that the board has to take risky decisions, which may not always yield a positive outcome. This may leave the directors and the officer prone to litigation for wrongful acts.

The D&O coverage protects the directors and the various management team members from claims alleging wrongful acts. This coverage usually entails Side A, Side B, and Side C coverage, each protecting the directors and officers from a particular type of claims. For startups with a tight budget, Side A and Sib B coverage do suffice.

#3. Product Insurance Liability – This particular insurance coverage is important for all businesses that manufacture, market, sell, and distribute products. It guards against claims emanating from products defects that may cause bodily harm or property loss. Aside from protecting the startup from financial losses emanating from claims, the insurance coverage will protect businesses against losses incurred due to recalls. In a nutshell, if you deal with physical goods, this should be one of the standard insurance coverage your business takes.

#4. Media/Cyber Insurance – As things stand today, you must have an internet presence for your startup to not only thrive but to survive. A lot of the commerce is moving online and businesses, whether big or small must maintain a presence on the internet. That being said, the rise of hacking and the ever-increasing complexity of online security leave that many businesses vulnerable.

Hackers are always lurking on the internet trying to gain illegal access to businesses’ information systems. On the other hand, new security measures are either too complex or costly for businesses to implement. This means many startups might either overlook implementing the best cybersecurity measures, increasing their vulnerability to hackers.

Cyber insurance coverage covers startups in the event their systems are hacked, infected with viruses, or breaches that target and compromise trade secrets, financial information or private information of their customers and clients is leaked. This coverage will provide cover startups from such data losses, legal expenses that may arise from these losses, or even cyber extortions.

#5. Professional Liability/Errors And Omissions Insurance – These insurance covers protect companies that offer professional services from claims of error, malpractice, and omissions. The cover also protects against cases where clients claim your advice caused harm or loss. This insurance should be standard assurance for startups operating in the medical field and other health-related industry.

#6. First-Party Insurance – if your startup has significant investments in equipment, this is a must-have insurance. The coverage protects a startup’s equipment from physical damage. This ensures that the investments made to purchase equipment is well protected and by extension, the business is well protected. Whether you are operating a bakery or a tech startup, this cover will protect your investment in equipment.

For the best business insurance coverage is the “all risk” type of coverage. Under this coverage, all your equipment (except those specifically excluded under the policy terms) is excluded. Furthermore, you may add a business interruption coverage to cover your business from losses arising from downtime before replacements or repairs are made.

#7. Workers’ Compensation Insurance – For many startups, this is all but mandatory insurance to have. As matter of fact, there are jurisdictions that require businesses to have a workers’ compensation coverage. However, all the emphasis for businesses to have this insurance coverage is for a good reason. With the average cost of workers’ compensation costing $63K, workers’ compensation can be very expensive for budding startups.

As such, it makes sense to have a compensation policy that will cover instances of employees getting hurt while working including their medical bills, wage replacements, and benefits. Such expenses can drown a startup in financial chaos if the business is paying out of their pocket. Furthermore, there is the issue of abiding by the law. You might face stiff penalties when you do not comply with the law requiring you to have this insurance coverage.

#8. Home-Based Business Insurance – Forbes has reported that approximately 52% of all small businesses operate from residential premises. And for many entrepreneurs, their first base of operation is their homes. With a tight budget, it makes sense to reduce overhead costs. Using your home does reduce cost quite significantly.

However, it is important for home-based businesses to have the right insurance. This insurance policy covers property damage arising from business operations. The insurance also covers other liabilities associated with the running the business from your home.

While the above insurance covers are the typical covers that startups should sign up for, there are other covers entrepreneurs may consider. These include commercial property insurance, life insurance, and unemployment insurance. The insurance you sign up for is determined by the type of business a startup runs.

3 Tips for Choosing an Insurance Company

Now that you know what types of insurance you could secure for your business, it’s time to look for an insurance company that can provide the service that you need. You’ll be entrusting your money to these insurance companies, which is why it’s vital that you choose carefully. 

Make sure to consider these tips when choosing an insurance company:

  • Determine Company History and Reputation

Ideally, you should only apply for insurance with a company that has a good track record in the industry. This company should have thousands of satisfied and happy clients, and known for its financial strength and company leadership. 

  • Price

You’ll be paying a certain amount of money when you get insurance but different companies charge different rates. For you to end up choosing insurance that suits your budget, compare options first by asking quotations from at least three insurance companies. 

  • Ease of Doing Business

Entrepreneurs like you are often busy, so make sure to choose an insurance company that implements practices suitable to your hectic lifestyle. An insurance company that offers online bill payments and online claim reporting, for example, is a great option because you won’t have to leave your office just so you can transact with them. 

In Conclusion

The types of insurance your business has can make or break its long-term success. Regardless of how innovative your products and services are, if you’re caught in a financial emergency, your business will struggle and face bankruptcy. In worse cases, these situations can even become the reason why your business will be short-lived. 

If you want your business to thrive and succeed in the long term, prioritize getting the right type of insurance as soon as possible. Having insurance will increase your business’s chances of surviving because you’ll have something to rely on during emergencies. 

About Carson Derrow

My name is Carson Derrow I'm an entrepreneur, professional blogger, and marketer from Arkansas. I've been writing for startups and small businesses since 2012. I share the latest business news, tools, resources, and marketing tips to help startups and small businesses to grow their business.

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