No matter what industry you’re in, there’s always a risk of exposure during your startup’s early days. Even before you hire your first employee, your business can be liable without the right insurance plan in place. Startups are especially in need of protection from lawsuits, because just one catastrophic event could be more than enough to kill a burgeoning early-stage business.
Businesses in different sectors require differing suites of insurance coverage, so we want to explain each option and help guide you in selecting the ones your startup will need. But first, a definition of a few common insurance terms:
Definition of Terms
Related insurance terms are defined as follows:
- Coverage / Policy Limit – A policy limit refers to the monetary amount that an insurance company will pay out in relation to a specific insurance policy claim. This is the maximum amount of money for which an insurance company is responsible.
- Premium – An insurance premium is the amount of money an individual or business pays for an insurance policy.
- Deductible – The insurance deductible is the amount you will pay in an insurance claim before the insurance company starts covering the cost.
Types of Insurance As Needed
A user at Quora shared the three major triggers that will dictate when a startup needs to get specific commercial insurance in place:
- Vendor, Customer, or Client Contracts
A common vendor contract will require that at a minimum general liability and professional liability coverage is put into place. This may extend to specific coverages such as commercial auto, especially in the case of services firms.
Professional Liability Insurance (also known as errors and omissions insurance)
Description: This is necessary to help protect your business from negligence claims that come as a result of mistakes and/or failure to perform. It may also cover claims of libel and slander, inadvertently sharing confidential information, theft of intellectual property, and more.
Common Coverage: $250,000 to $2 million
Estimated Premium: $710 per year on average
Heads Up: Building Design and Media & Advertising businesses usually pay higher premiums than average companies, as both are seen to be risky businesses in terms of professional liability.
Description: General liability insurance can help cover medical expenses and attorney fees resulting from bodily injuries and property damage for which your company may be legally responsible
Common Coverage:$1 million to $2 million
Estimated Premium: $500 per year on average
Heads Up: Construction, Cleaning Services, and Landscaping businesses usually pay higher premiums. These industries often do work that involves someone else’s property.
- Setting up an Office at Home or Moving into a Commercial Space
Property Owners will likely require that they be named on such policies as additional insureds and require that a valid certificate of insurance be provided to the management office before handing over the keys.
Description: Property insurance will cover things like Company Owned Equipment, Inventory, Furniture, and Property Damage.
Common Coverage: $60,000 with a deductible of $1,000
Estimated Premium: $755 per year on average
Heads Up: Geography, size of business premises, safety and security, age of building, type of equipment, age of equipment, property valuation method, and types of hazards covered are all factors that impact property insurance costs.
Description: If you conduct your business from home, it is important to have homeowners or renters insurance which protects you against possible theft, fire, or property damage
Common Coverage: Starts at $100,000
Estimated Premium: $1,445 per year
Heads Up: Cost of coverage varies significantly based on state laws, your home’s location and the cost to rebuild.
- Hiring of Employees
Getting workers for your startup will now require workers’ compensation insurance.
Workers’ Compensation Insurance
Description: This will cover your business for medical treatments, disability and death benefits in the case that one of your employees is injured or dies as a result of working for your business.
Common Coverage: $40,000 average cost of a workers’ comp claim.
$560 per year
Those with 1-10 employees pay a range of $435 – $ $1,261.
Those with 10+ employees pay $1,983 on average.
Heads Up: Workers’ compensation is regulated on the state level, and each state has its own requirements and penalties. Texas is the only state where workers’ compensation insurance is optional for employers. Physically demanding work usually results in higher premiums – so does a history of workplace accidents.
Industry - Specific Insurances
Description: This helps pay for medical bills and property damage related to an accident in a business-owned vehicle. It also covers vehicle theft and other types of vehicle damage.
Common Coverage: Policy limit of $1 million
Estimated Premium: $1,704 per year
Heads Up: The cost of commercial auto insurance is influenced by the number of vehicles owned by your business, the value of the vehicles, and how often they are driven.
Description: This covers a business’s responsibility for the products they make or sell. If a product causes harm, product liability pays the injured party’s medical or repair bills as well as the business’s legal fees.
Common Coverage: Starts at $100,000
Estimated Premium: $2,500 per year
Heads Up: For riskier products like medical devices or biotech, the costs likely won’t fall below $7,000 per year. Product liability insurance rates are determined by sales revenue.
Description: Cyber liability insurance can pay for expenses if a small business suffers a data breach or malicious software attack, including customer notification, credit monitoring, legal fees, and fines
Common Coverage: $500,000 to $5 million or more per occurrence.
Estimated Premium: $1,675 per year
Heads Up: Businesses that handle a large amount of sensitive customer information typically pay a higher premium for cyber liability insurance. For example, healthcare professionals with access to customers’ personal and medical information may pay more for this policy.
Umbrella Insurance (Also known as “Excess Liability Insurance”)
Description: Once a policy’s limit is reached, commercial umbrella insurance provides additional funds for claims made on general liability, commercial auto, or employer’s liability insurance.
Common Coverage: $1 million increments
Estimated Premium: $900 per year
Heads Up: Building Design, Consulting, IT/Technology, & Professional Services often pay higher premiums for Umbrella Insurance.
Other Employee Benefits
Description: This covers the cost of employees’ medical and surgical expenses.Once a policy’s limit is reached, commercial umbrella insurance provides additional funds for claims made on general liability, commercial auto, or employer’s liability insurance.
Common Coverage: Not Available
Employer Contribution of Small Firms (3-199 workers)
Single Coverage = $5,681 per year
Family Coverage = $11,957 per year
Heads Up: Costs are influenced by location, employee census (demographics), number of participants, carrier, plan coverage, plan structure, and network of providers
Description: Accident insurance offers benefits beyond health insurance after an accident. Policyholders can use payout for loss of income, mortgage, rent, medical expenses or any other financial need.
Common Coverage: As high as $10,000 for expensive accidents
Estimated Premium: $5 for an individual, to $30 for a family
Heads Up: None
Directors & Officers Insurance
Description:Directors and officers insurance protects board members and officers against legal expenses if they are sued for a decision they made on behalf of the company that led to a financial loss
Common Coverage: $1 million with a deductible of $1,000
Estimated Premium: $1,240 per year
Heads Up: None
Key Insurances Based on Industry
- Cyber Risk Insurance
- Professional Liability Insurance
- Directors & Officers Insurance
- General Liability Insurance
- Property Insurance
- Group Health Insurance