Startup Insurance

A Shield to Your Business

Annually, about 627,000 new startups begin operations in the U.S. The integration of advancing technologies, dynamic customer demands and evolving regulatory structures have introduced plenty of opportunities for entrepreneurs to create a new business. Starting your own business gives you freedom and flexibility, and the potential for high profits. However, with high rewards comes high risks. The Small Business Administration states that about 595,000 businesses are shuttered each year. If you have a startup or are thinking of opening a new business, you need a safety net to keep your finances secure. The most reliable way to do that is through startup insurance.  

In this article

What Is Startup Insurance?  

Startup insurance is a bundle of insurance policies to keep your business safe. Your business is susceptible to losses due to property damage, lawsuits, negligent professional services, accidents, and more. Through insurance policies like workers compensation, commercial auto, general liability, and more, startup insurance can compensate you for covered risks to keep your business from facing financial turbulence.   

Why Shouldn’t You Downplay the Role of Insurance?   

There is a myriad of reasons why startup insurance is essential. Here’s a list of potential threats in your business environment that the insurance can cover.

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Cyber risks  

The aggressive integration of technology for data processing, storage, transfer, and retrieval has helped businesses. However, you can’t neglect the risks they bring, such as the potential loss of sensitive data.

In 2018, cybercrime brought a loss of at least $2.7 billion. Small and medium businesses (SMBs) are even more vulnerable. In 2014, 60% of total cyber-attacks were targeted at SMBs. Additionally, phishing and network intrusion are the common cyber-attacks in the U.S, and losses from these attacks have become more and more costly for business owners. Moreover, California, Florida, Ohio, and Texas are the states most vulnerable to cyber risks.

Lawsuits  

Risks of lawsuits increase as startups grow their business. Lawsuits relating to negligence, malpractice, unreliable consultancies, injury, or damage to customers and employees are unfortunately not uncommon. In fact, one in five SMBs faces employment charges, leading to a defense cost of around $125,000 on an average. The most vulnerable states for such lawsuits are California, Mississippi, Illinois, Alabama as well as the District of Columbia.

Property damage 

Damage to property due to fire, wind, flood, earthquake, etc. comes uninvited and suddenly. Building structures or vehicle damages can be financially taxing for a fledgling company. For instance, property loss due to fires amounted to $12.29 million in the U.S. in 2019. Additionally, according to the Global Claims Review by Allianz Global Corporate & Specialty, fires/explosions are the dominant cause of property damage in the U.S., followed by storms.

Business interruption

Insurance is your safety net when unfortunate events occur. And things will eventually go wrong. Insurers can cover all the risks stated above and more. Insurance is critical to keep your business moving forward when it hits bumps in the road.

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Which Insurances Does Your Startup Need?   

There are a variety of insurance policies you can opt for. Below is a list of policies to consider for your startup insurance.

Workers compensation insurance  

As soon as you hire employees for work, workers compensation insurance should be in place. This policy covers the medical costs, rehabilitation costs, and lost wages arising from injury, disability, or death caused due to the work environment. In return, it waives the right of employees to file a suit against you. Workers compensation insurance is legally mandated in every state except in Texas. However, if you’re in Texas and don’t have coverage, you are highly prone to hefty lawsuits from your employees.

Commercial auto insurance

Your personal auto insurance does not cover damages to your company-owned vehicle(s). Therefore, for any business-owned vehicle, you should purchase commercial auto insurance. Every state mandates this insurance, excluding New Hampshire and Virginia. A commercial auto policy covers medical expenses, property damages, and third-party liabilities.

Professional liability insurance

Even if you are the most experienced professional, the risk of lawsuits from negligence, malpractice, missed deadlines, etc., cannot be ruled out. Therefore, you need professional liability insurance. It covers your legal defense costs, investigation costs, settlement costs, and more. You need this coverage, especially if your startup involves advisory or consultancy functions. This insurance is popular among real estate agents, graphic designers, I.T. consultants, accountants, etc.

Liquor liability insurance 

If your startup business is a bar, restaurant, or sells, serves, produces, or distributes alcohol in some capacity, you should get liquor liability insurance. Typically, you’ll need this insurance to get your liquor license. This insurance covers your business from any charges based on property damages or injuries caused by an overserved patron or a minor. You can’t keep worrying about every customer’s action, but you can bring certainty to uncertain events.

Commercial property insurance 

Whether you own the physical building where your business resides or just own the physical office equipment and assets, you want to make sure that your investment is not flushed out by one devastating event. Hence, commercial property insurance is essential. It covers losses to the physical office structure, company-owned equipment, inventories, and furniture.

Business owners policy

business owners policy (BOP) is a bundled policy or a packaged policy that provides extensive coverage to small and medium businesses at reasonable prices. A BOP usually covers:
  • property damage
  • business interruption income,
  • third-party liability.
However, you can add other coverages to fit your needs. A BOP costs less than buying policies separately, making it an excellent option for businesses. You can add other insurances for your startup, such as:

Exclusions and Endorsements

While making your insurance decision, you need to understand the exclusions and endorsements. To clarify, endorsements are the add-ons to your policy that help you add, modify, or exclude coverages to tailor the policy to your unique business needs. On the other hand, exclusions are the risks or cases not covered by insurance. The common exclusions are:
  • Intentional damage to properties
  • Catastrophic natural disasters
  • Pandemics
  • War
  • Nuclear and radiation accidents
  • Illegal activities
Exclusions and endorsements for every policy differ. Therefore, talk to your insurance provider to get a better understanding.
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Quick Tips for Finding Appropriate Insurance for Your Startup   

Since not all products are necessarily relevant to your business, you should comprehensively analyze your needs before starting insurance shopping. Here are a few quick and beneficial tips for you:

Recognize the potential risks  

Firstly, you should have a comprehensive understanding of risks—both internal and external—surrounding your business. Proper knowledge of risks plays a significant role in understanding the insurance coverage your business requires.

Calculate risks 

Secondly, since controlling every risk is impossible, you need to evaluate the risks that your business is susceptible to. Therefore, identify the risks that might bring potential losses to your business. If you try to cover all the risks, your startup business insurance costs will sky-rocket. Thus, it is best to filter the risks that you want to take care of.

Talk to an agent 

The intricacies of an insurance contract can be tricky to understand. However, a professional who has spent tremendous time in the insurance industry can help you understand the technicalities and advise you on the policy best suited to your business. Additionally, you may get discounts based on their networks with insurance carriers.

Shop your options  

Look out for possible insurance policies by comparing their coverages, costs, and the credibility of insurance providers. Such comparisons can help you keep your expenses in check. Furthermore, you can even get quotes to get an estimated cost of a policy.

Buy the one that fits  

After you carefully scan your options and talk to your insurance agent, narrow down your options and pick the one with comparatively impressive benefits at a lower cost. Remember that insurance can be tricky—to reap the benefits, you have to choose the one that fits your needs. Your business needs and the risks your business faces may change with time. As a result, you should periodically review your coverages and adjust your startup insurance accordingly.

Cost of Startup Insurance 

Many factors determine your insurance cost, such as:

Nature of business 

Insurers categorize industries based on risks. For instance, construction companies inherently have higher risks than a simple retail store. Therefore, insurers charge higher premiums to construction companies compared to businesses in other industries.

Business location 

Where is your business located? Is it located in a flood-risk area? If yes, insurers may charge you a higher premium. Additionally, you may have to purchase a flood insurance policy.

Number of employees 

The more the employees, the greater the risks. For instance, with more employees, there is a higher risk of employee injuries or employee lawsuits. Hence, you will require higher coverage, increasing the cost of insurance.

Value of properties 

High-value equipment, furniture, building(s), etc., all expose you to risks at a higher amount of loss. Therefore, to cover high-valued property, you’ll need to pay a higher premium.

Startup insurance is not merely an insurance contract but an effective risk management technique. Hence, take a step towards safety today!