What Types of Insurance Do I Need for My Startup (1-25 Employees)? 

by Adarsh Raj Bhatt

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

user at Quora shared the three major triggers that will dictate when a startup needs to get specific commercial insurance in place:

  1. 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.

General Liability Insurance

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.

  1. 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.

Property insurance

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.

Home Insurance

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.

  1. 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.

Estimated Premium:

$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

Commercial Auto Insurance

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.

Product Liability Insurance

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.

Cyber Liability Insurance

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

Group Health Insurance

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

Estimated Premium:

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

Group Accident Insurance

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

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