Purchasing insurance may seem like an unnecessary luxury in the early days of building your startup. Money is always in short supply, and there are a million other things you have to think about.
But having the right insurance can protect your business from a number of unforeseen risks. There are ways to make sure you have the maximum amount of coverage without investing a small fortune.
So how do you know what kind of insurance your startup will need? Well, here is a guide to purchasing insurance for your startup:
1. General liability insurance
Do you work one-on-one with clients, sell a product or service, or work with vendors? All of these situations put you at risk for liability to third parties, which means you will need general liability insurance.
General liability insurance protects your business from some of the most common risks that come from running a business, such as accidents and injuries, accusations of slander, manufacturing defects, and much more.
2. Professional liability insurance
You’ll want professional liability insurance if you offer any type of professional service to clients. Providing a service instead of a product still puts you at risk for lawsuits. And while you’re probably confident about the service that you’re offering, customer feedback is highly subjective.
Also known as errors and omissions (E&O) insurance, this type of insurance protects you from claims of financial loss from a third party. This is important if you are a lawyer, accountant, consultant, or offer any type of financial advice.
3. Property insurance
If your startup owns any sort of property, then you will need property insurance. Property insurance protects you from a break-in, fire, or different types of natural disasters. You should find out what specific things you’re at risk for depending on your location.
4. Workers’ compensation insurance
If you have any employees, workers’ compensation is a required because accidents can happen in the most low-risk environments. You want to know that if one of your employees injures themselves at work you have insurance to cover their medical expenses and lost wages.
5. Directors and officers insurance
Many startups think they are too small for directors and officers (D&O) insurance. D&O insurance is not just for publicly traded companies, it protects the personal assets of board members and executives.
For instance, let’s say some of your investors claim that you misused their investment and try to sue you personally. D&O insurance will kick in and protect your personal assets. It can also protect the company itself if you or another executive are personally indemnified.
6. Cyber liability insurance
There have been many well-documented cases of companies being hacked in recent years. And it’s not just large companies like Target that are at risk. 43 percent of cyber attacks are targeted at small businesses.
Hackers typically aim at businesses that accept online payments or store personal customer information. And small businesses and startups often don’t have the resources to bounce back from a cyber attack. 60 percent of small businesses go out of businesses within six months of being the victim of a cyber attack.
Cyber liability insurance can cover credit monitoring, civil damages, and computer forensics. It will also cover the cost of notifying your customers about the data breach.
7. Product liability insurance
This type of insurance is fairly self-explanatory. If your company sells a product that causes injury to one of your customers, your business could be held liable.
Lawsuits can be financially devastating to startups and small businesses. Product liability insurance will cover claims resulting from product defects.
Of course, the needs of your startup will vary depending on the type of business you run. Some of the policies listed above may not apply or may not be necessary for the time being.
Consultants will need different types of insurance than a business that sells products. You should work one-on-one with an experienced insurance broker to determine how to best protect your business.
Now is your turn!
What insurance is the most critical for your startup?
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