There’s no one-size-fits-all insurance policy for startups. Instead, you need business insurance for the potential risks your startup faces (like lawsuits and property damage).
A different policy covers each kind of risk, so you want to know which ones might be a problem for your startup. This will help you get the appropriate coverage.
What is Business Insurance for Startups?
No matter what industry you're in, the risk is still always present in the early stages of every startup.
Why does this matter?
Your startup could be liable even before you hire your first employee if you don't have the right insurance plan in place. Early-stage startups, in particular, need special safeguards from litigation because a single disastrous accident might be enough to put them out of business.
Entrepreneurs, thankfully, have access to quite a wide range of business startup insurance options to help shield them from any possible threats.
That’s why we'll go through the various forms of business insurance that all startups should have in place.
What Insurance Do I Need to Start a Business?
Business Insurance
Business insurance is frequently offered as a policy that includes a variety of coverage options -- the most popular of which are building, contents, theft, glass, and general property.
This policy is intended to compensate for material damages caused by unforeseeable incidents such as fire, storm, burglary, and accidental damage, as well as loss or damage to portable and important possessions such as laptops, cell phones, tablets, and other devices.
You've invested a lot of time and effort into launching your startup, so it's critical to think about the types of insurance you'll need to protect it.
Public Liability Insurance
Public liability insurance protects you (and your employees) from third-party claims for bodily injury or property damage caused by your goods or services.
For instance, if a customer falls on a wet area of your shop/office floor and breaks their hand, or if an employee destroys your consumer's furniture when renovating their home, this insurance might provide the security you need.
Public liability insurance covers not only the compensation costs but also the cost of your defense. A potential lawsuit could cost hundreds, if not thousands, of dollars if you don't have the right kind and amount of coverage.
Such expenses might be enough to seriously dent an early-stage startup: or worse, put it out of business.
Professional Indemnity Insurance
Professional indemnity (PI) insurance is a must-have if your startup or job includes delivering a service or some kind of advice.
It shields founders from responsibility for damages as well as the legal expenses of defending themselves against lawsuits arising from an act, omission, or breach of duty while on the job.
But there’s a catch.
Be it only financial damage or violation of professional duty, the public liability policy would not cover you, so it's important that you understand the difference.
Cyber Liability Insurance
In the case of a cyberattack, cyber liability insurance covers the business. If the website is hacked and/or defaced, or your confidential data and client information is compromised, the costs of fixing the damage and the legal fees related to the data breach will most likely have a significantly adverse effect on your startup, to say nothing of the brand damage that they could cause.
Therefore, if your startup has a website or stores confidential consumer data on devices like computers or smartphones, you should consider purchasing a cyber liability policy.
How much does business insurance cost?
Coverages and business insurance premiums can differ (or vary) significantly depending on the following factors:
#1: Company risk
Insurance premiums are typically higher for riskier startups, which would include most startups.
Physical and financial threats to your startup, employees, suppliers, and customers are examples of risk factors.
#2: Business location
Startups situated in densely populated areas are more likely to encounter crime or vandalism, which might raise insurance premiums.
#3: Visibility
People are more likely to target well-known businesses in the public eye in comparison to lesser-known businesses.
As a result, your insurance premiums could rise as your reputation grows.
#4: Payroll size
The size of your payroll influences your workers' compensation benefits.
Since there is a greater chance of bodily injury with a larger payroll (as larger payroll means more employees), the insurance would be costlier as well.
#5: Coverage levels
The more coverage and restrictions that you add to your insurance plan, the more you'll have to pay.
Deciding on a higher deductible will also help you save money on your monthly or yearly premiums.
What should you look for when choosing an insurance provider?
Does the company pay its claims?
One of the most common complaints that customers have is that they file claims for damages only to have most of them denied by the insurance provider.
Here’s the deal:
The number of tricks and games that insurance firms play in this context is probably well beyond the scope of this, or any other, blog. The topic of how insurance companies try to avoid paying premiums has been the subject of entire books, but the overall message remains consistent: if your insurance provider doesn't pay claims, look elsewhere.
Quote Calculation
Of course, you want to compare quotes from various insurance firms in order to get the best deal -- which is why you'll need to learn exactly how the insurance firm writes its quotes.
They should be honest and transparent about how they assess risk when quoting a policy. Do they, for example, consider the scale of your business and your industry?
Bottom line?
You will be better informed (and, subsequently, able to choose the best insurance provider) if you know how exactly insurance providers evaluate your business.
Recognize your specific industry's business insurance obligations
As a startup founder or small business owner, you need to be aware of your specific industry’s insurance obligations.
If you overlook any aspect of your business or your industry, you could be putting your startup at risk.
It's also worth noting that not all small businesses need insurance, so be aware of what you're signing up for.
(Of course, this does not detract from the legal scenario that the federal government requires every business with employees to have workers’ compensation, unemployment, and disability insurance. Not to mention, the U.S. Small Business Administration recommends that “laws requiring insurance vary by state, so visit your state’s website to find out the requirements for your business.”)
Thorough Risk Analysis
Begin by imagining what could happen to make you responsible or expose you to a large and court-mandated financial outlay.
The reason for this is clear: you'll know what you need insurance to cover once you've recognized the risks.
Check the insurance company's ratings and speak with other providers to see what options they provide. If you need to make a claim, understanding how the process works (and then choosing a more reliable provider) would be more relevant than saving a few dollars on your premium by settling for a cheaper insurer.
Insurance Providers based on Detailed Coverage
Vouch
Description: Vouch is an insurance company catering to startups.
Best for: Protection from mistakes, litigation, and attack
Cost: Starts at $300 per year
Coverage: General Liability, Business Property, Cyber Coverage, D&O (Directors and Officers), E&O (Errors and Omissions), Employment Practice Liability, Employee Benefits Liability, Fiduciary Coverage, Crime Coverage, Hired & Non-Owned Auto
Pros:
- Instant proposals
- Premier protection
- 10 coverages
- Tailored to specific needs
- Digital management
Cons:
- Vouch has been around for less than two years and it is not available in every state yet.
Next Insurance
Description: Next Insurance is an online insurance platform that helps SMEs and entrepreneurs secure and grow their businesses.
Best for: Small businesses
Cost: Customised to the type of business or professional insured (though their website claims that “you can get insured at less than $3 a day”).
Coverage: General liability insurance, professional liability, commercial auto, and workers’ comp.
Pros:
- 100 percent online
- 10 minutes to get covered
Cons:
- Limited territorial scope (some large states, such as New York, aren't set up to compensate general liability)
- Only 3 policies are available - professional liability, general liability, and commercial vehicle insurance.
Insureon
Description: Insureon is an independent marketplace for the online delivery of small business insurance. Headquartered in Chicago.
Best for: Small businesses
Cost: Not available
Coverage: General Liability, Commercial Property, Professional Liability, Workers’ Comp, Directors and Officers, Commercial Auto and Cyber Liability Insurance
Pros:
- Quotes are generated by top insurance carriers
- Insureon account reps usually get good ratings for customer service.
Cons:
- Insureon does not deal with policy issues; any policy concerns or allegations would be directed to the carrier.
The Hartford
Description: The Hartford is a financial services and insurance company offering auto, home, business, and employee benefits insurance.
Best for: Protecting business owners from unexpected losses.
Coverage: Covers a wide range of insurance products tailored fit for startups/small businesses
Cost: Average annual cost of $1,172 depending on industry and insurance coverage
Pros:
- Great experience with damage claims
- Has an A+ rating on BBB (Better Business Bureau)
Cons:
- While The Hartford has outstanding reviews on its own website, third-party platforms have a broader distribution of positive and negative reviews, as well as far fewer reviews. It's worth mentioning this disparity between their own platform and others.
AP Intego
Description: AP Intego is an insurance company tailored for small businesses
Best for: Digital Insurance for small businesses
Cost: Depends on the custom insurance plan that a customer avails
Coverage: AP Intego partners with 19 A-rated insurance carriers to source the best-fit, best-price coverage for their customers (customers that include mostly small businesses).
Pros:
- Flexible payment integrations
- Various types of malpractice coverage
Cons:
- Scope for improvement in customer service
Founder Shield
Description: Founder Shield is an insurance company catering to startups and has differentiated coverage per industry
Best for: Risk Management for high-growth startups
Cost: Depends on the custom insurance plan that a customer avails
Coverage: Data-driven insurance brokerage which covers a wide range of insurance products
Pros:
- The seamless and informative insurance purchasing process
Cons:
- Complaints about billing and collection issues have arisen from time to time
Coverhound
Description: Coverhound is a comparison site for business insurance providing transparent choices and competitive rates for anyone’s insurance needs.
Best for: Comparing quotes from the most trusted insurers, all in one place
Cost: Free to use
Coverage: Data-driven matches that allow customers to easily compare rates from trusted insurers
Pros:
- Good customer service
Cons:
- Poor experience with damage claims
State Farm
Description: State Farm is the largest property/casualty insurance company in the US, representing about 10.1 percent of the market
Best for: Coverages that fit your business needs
Cost: $1,234 average annual rate depending on insurance product and coverage
Coverage: Covers a wide range of insurance products related to home and property, life, health, disability, and liability.
Pros:
- Numerous discounts offered
Cons:
- State Farm had more complaints than expected for a company of its size
Berkshire Hathaway
Description: Berkshire Hathaway is the second-largest property/casualty insurance company in the U.S., representing 6 percent of the market
Coverage: Covers a variety of insurance products related to professional lines, surety, travel, casualty, and property
Cost: $1,168 average annual rate depending on insurance product and coverage
Pros:
- Financial strength ratings of A++ from AM Best and AA+ from S&P
- Claims handling expectations are firmly set -- and generally exceeded
Cons:
- Scope for improvement in customer service
Liberty Mutual
Description: Liberty Mutual holds 5.3 percent of the U.S. market
Best for: Getting to know your discounts
Cost: Depends on insurance product and coverage
Coverage: Covers a variety of insurance products related to property and casualty
Pros:
- Many types of coverage available
- Lots of discounts
- Robust digital tools
Cons:
- More auto insurance complaints to state regulators than expected for its size
- Customer satisfaction ratings are below average
Allstate
Description: Allstate holds 4.9 percent of the U.S. market
Best for: Risk assessed specific to your business
Cost: $1,880 average annual rate depending on insurance product and coverage
Coverage: Covers a variety of insurance products related to auto, business, roadside, and identity.
Pros:
- Good environment and good service
Cons:
- Claims satisfaction rates are average
- Inconsistent online quoting tool
Progressive
Description: Progressive holds 4.3 percent of the U.S. Market
Best for: Customized coverages; focused on auto-insurance
Cost: $1,373 average annual rate depending on insurance product and coverage
Coverage: Covers vehicle, property, finance, commercial and personal insurance
Pros:
- Wide portfolio of insurances offered
Cons:
- Known primarily for its auto-insurance (over business insurance); third-largest personal auto insurer in the country
Insurance Providers based on Offered Insurance Type
Vouch
General Liability: Yes
Commercial Property: Yes
Professional Liability: Yes
Workers’ Comp: No
Directors and Officers: Yes
Commercial Auto: Yes
Cyber Liability: Yes
Health Insurance: No
Next Insurance
General Liability: Yes
Commercial Property: No
Professional Liability: Yes
Workers’ Comp: Yes
Directors and Officers: No
Commercial Auto: Yes
Cyber Liability: No
Health Insurance: No
Insureon
General Liability: Yes
Commercial Property: Yes
Professional Liability: Yes
Workers’ Comp: Yes
Directors and Officers: Yes
Commercial Auto: Yes
Cyber Liability: Yes
Health Insurance: No
The Hartford
General Liability: Yes
Commercial Property: Yes
Professional Liability: Yes
Workers’ Comp: Yes
Directors and Officers: No
Commercial Auto: Yes
Cyber Liability: Yes
Health Insurance: Yes
AP Intego
General Liability: Yes
Commercial Property: Yes
Professional Liability: Yes
Workers’ Comp: Yes
Directors and Officers: No
Commercial Auto: Yes
Cyber Liability: Yes
Health Insurance: No
Founder Shield
General Liability: Yes
Commercial Property: Yes
Professional Liability: Yes
Workers’ Comp: Yes
Directors and Officers: Yes
Commercial Auto: Yes
Cyber Liability: Yes
Health Insurance: Yes
Cover Hound
General Liability: Yes
Commercial Property: No
Professional Liability: Yes
Workers’ Comp: Yes
Directors and Officers: Yes
Commercial Auto: Yes
Cyber Liability: Yes
Health Insurance: No
State Farm
General Liability: Yes
Commercial Property: Yes
Professional Liability: Yes
Workers’ Comp: No
Directors and Officers: No
Commercial Auto: Yes
Cyber Liability: No
Health Insurance: Yes
Berkshire Hathaway
General Liability: Yes
Commercial Property: Yes
Professional Liability: Yes
Workers’ Comp: Yes
Directors and Officers: Yes
Commercial Auto: Yes
Cyber Liability: No
Health Insurance: Yes
Liberty Mutual
General Liability: Yes
Commercial Property: Yes
Professional Liability: Yes
Workers’ Comp: Yes
Directors and Officers: Yes
Commercial Auto: Yes
Cyber Liability: No
Health Insurance: No
Allstate
General Liability: Yes
Commercial Property: Yes
Professional Liability: Yes
Workers’ Comp: Yes
Directors and Officers: Yes
Commercial Auto: Yes
Cyber Liability: No
Health Insurance: Yes
Progressive
General Liability: Yes
Commercial Property: Yes
Professional Liability: Yes
Workers’ Comp: Yes
Directors and Officers: No
Commercial Auto: Yes
Cyber Liability: No
Health Insurance: No
We can help!
At AbstractOps, we help early-stage founders streamline and automate regulatory and legal ops, HR, and finance so you can focus on what matters most — your business.
If you're looking for help with startup insurance, we can get your questions answered. Sign up to get started.
Like our content?
Subscribe to our blog to stay updated on new posts. Our blog covers advice, inspiration, and practical guides for early-stage founders to navigate through their start-up journeys.
Note: Our content is for general information purposes only. AbstractOps does not provide legal, accounting, or certified expert advice. Consult a lawyer, CPA, or other professional for such services.
Citations
- Insurance for Startups
- Small Businesses Without Insurance Take Dangerous Risks
- Best Small Business Insurance Companies
- Startup Insurance: Everything founders should know about protecting their company