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Beginner's Guide to Startup Insurance
15 Jun 2018

A Beginner’s Guide to Startup Insurance

You would never consider buying a car and put off buying insurance for it. And, you wouldn’t snub your nose at your lender and skip getting a homeowner’s policy.

Well, the same is valid for business coverage. There are laws which require businesses to carry at least some liability coverage.

So, depending on your state, you’ll need to fulfill the obligation. For startups, it can seem there’s much to choose from and much to know. But, finding insurance for startups does not have to be the daunting task it might seem.

We have the 411 on the basics, and why it’s essential. You invest more energy, time, and money in your startup every day.

And, you don’t want to lose any of it. Especially when events can unfold of which you have no control. It is for those events we need insurance.

The Basic Insurance for Startups

The most typical of startups may not have tremendous assets which need coverage yet. However, people and essential equipment pose risks. And, if you have investors, they’ll want to make sure they have protection.

General Liability

This coverage is necessary for many states, as well as by lenders. It includes both bodily injury and property damage.

For example, let’s say you are working with a client in your office. If they slip or fall, the bodily injury coverage will take care of their medical bills.

And, if the injury results in a lawsuit, your legal expenses part of the coverage.

Let’s say you or one of your employees does damage to someone else’s property. General liability covers this too.

This coverage is critical for business, especially startups. Risks can be high at the start of any business. Standard operating procedures are still fluid, and we can learn things the hard way.

As far as the amount of coverage you should buy, minimums are a set for your state. But, the amount should at least mirror the worth of everyone’s investment.

And, as your business grows, so should your coverage limits.

Property Insurance

Investors or lenders may also require this type of policy. This coverage is for your physical property, as well as any virtual information.

Whether you own or lease a building or office equipment, a property policy will cover damages. If your property or goods suffer theft or fire, funds are available for replacement or repair.

Also, natural disasters such as extreme weather are part of the coverage. But, flood insurance is a separate policy. Most important for startups is the coverage in a property policy for loss of income.

Any significant damage can halt your business. The policy will cover things like payroll and other expenses until you are up and running again.

And, if you happen to have 3rd party property at your company, this policy will cover that, too. Your personal belongings and your employee’s belongings should have coverage as well.

Worker’s Compensation

This type of policy may be state-mandated if you have any employees. But it is a critical piece of your coverage in that it protects you, too.

If anyone who works for you is hurt, this policy covers their medical expenses as well as lost wages until they can return.

Also, if your employee is hurt anywhere while conducting business for you, the coverage extends to this event, too.

Most importantly for business owners is that this eliminates lawsuits from employees who are hurt. As we know, this type of litigation can be lengthy and empty your pocket from large settlements. Not to mention, damage your reputation.

It’s critical and sometimes a state requirement that you have coverage for your entire startup team.

Beyond the Basics

Insurance professionals tell business owners to consider more coverage than the basics. And, depending upon what type of startup you have, you’ll want advice on higher policy limits.

For example, you may have a large number of capital expense items. You might consider property insurance over $1 million or more. You’ll always want to have some cushion between what you own or lease and the amount of coverage.

As a startup, you’ll likely be adding to your property and number of employees each year. Insurance is preparation for when the worst happens, so prepare well.

Here are a few other policy types to consider for now or the near future:

Umbrella Policy

This type of policy is available for individuals as well as business owners. It increases the amount of coverage you already have for liability.

Let’s say you become the target of a lawsuit after someone’s property suffers damage. If your general liability policy limits are $500,000, but they sue for $1 million, you will be responsible for $500,000.

An umbrella policy can increase the limit to $1 million. These policies are not as expensive as you may think. The difference between coverage of $1 million and $2 million may only be a few hundred dollars a year.

Errors and Omissions

Everyone makes errors. And, they can lead to very costly mistakes when you own a business. This policy covers you and your employees.

Without malice, someone might give incorrect information to a customer. Or, omit a fact. If it causes the customer damage, your business may be liable.

This policy covers the risk and pays for the damages.

Cyber Liability

We tend to think of data breaches as only involving large corporations. But, is very damaging to small business owners.

Merely reporting the breach is costly. And, 46 states require reporting. On a smaller scale, if one of your employees has their laptop stolen, bad things can happen.

A few social security numbers or credit card numbers can lead to a breach. Then, every customer and employee is at risk.

For a small business, one breach can cost up to $50,000. And, a small startup can lose up to 30% of its customers as a result.

A cyber liability policy covers the cost of state reporting and company losses for such an event.

Insurance for startups is as important as any other investment you make for the future. We’ve got more money advice here.