Startup Insurance Guide

Starting a business is inherently risky. While you’re naturally focused on meeting customers’ needs and selling products so you can stay in business, don’t overlook the risks that business insurance can protect you from, like natural disasters, theft, and lawsuits.

You can protect your startup with the following types of insurance policies:

• General Liability: This type of coverage protects you from lawsuits stemming from bodily injury, property damage, personal injury, slander and libel, and false advertisement. We identified seven of the best business liability insurance providers, with coverage that could start at just $11/month.
• Commercial Property: What physical items do you use to run your business, and how expensive would it be to replace them after a natural disaster, vandalism, or theft? This type of coverage typically covers your buildings, business products and equipment, and other people’s property while it’s in your care. If you own your building, start your search for coverage with our list of the best commercial property insurance. If you rent your workspace, check out our list of the best commercial renters insurance.
• Business Owners Policy: A business owners policy is a bundle of two or more insurance policies. When you buy a BOP, you usually receive a discount versus buying the policies separately. The most common bundle includes commercial property and general liability.
• Professional Liability: Not every startup needs professional liability insurance, which is also called E&O or errors and omissions coverage. It’s also known as indemnity or malpractice insurance, and it can help you pay the costs of defending your company in lawsuits where someone claims a financial loss because of employee error or failure to perform a service as required. If your startup involves giving customers advice, look into this type of policy.

Local, state, and federal laws may require you to carry certain types of business insurance. Here are three of the most common types:

• Workers’ Compensation: Federal law in 49 states (Texas is the lone exception) require businesses with one or more employee to offer workers’ compensation insurance. Workers’ comp makes payment directly to employees or their beneficiaries following on-the-job injuries, illness, and death.
• Commercial Auto: Do you (or any employees) routinely drive vehicles that your business owns? If so, you need to carry commercial auto coverage to protect the business in case of accidents, theft, and more. Personal car insurance is not designed for business-owned vehicles, but you may be able to get commercial auto coverage from your personal insurance company. You can also find a provider on our list of the best commercial auto insurers.
• Health Insurance: You might not be ready to think about providing health insurance to employees while you’re still in startup mode. And, because the Affordable Care Act (ACA) doesn’t require businesses with fewer than 50 employees to offer health insurance, it may be optional for now. If you’re interested in providing health coverage as a perk, you can offer group health insurance as soon as you hire your first employee. Our guide to health insurance for one employee will help you learn how.

Some startups have special needs that require specialized insurance policies. Other types of coverage can be added as your business grows if you need it. Here are four types of optional insurance coverage to keep your eyes on:

• Cybersecurity: If your startup handles sensitive data, including customers’ payment information and employees’ personal information, a data breach or hack could put your business at risk. This type of coverage doesn’t help you harden your systems, but it does help you with the legal and financial repercussions of a data breach.
• Business Interruption: When you’re just starting your business, you’re probably not thinking about what would happen if you had to close. But at any time, a natural disaster, theft, data breach, or act of vandalism could force you to close your doors temporarily while you reset and recover. This type of coverage helps you pay the bills while you’re unable to operate and provides compensation for loss of profit or income after a covered event.
• Umbrella: Even when you have the proper insurance protections in place, you could have gaps in your coverage. An umbrella policy adds a layer of liability protection by extending your coverage limits. In other words, if you have $100K in liability coverage limits and you are sued for $200K, you could be on the hook for the extra $100K. That’s where an umbrella policy comes in, covering the shortfall up to its own coverage limit.
• Key Person: As a startup, you may have no employees or many. Regardless, the “key person” in your company is the one who just can’t be replaced. Key person coverage is essentially a life insurance policy on an indispensable employee who would be extremely difficult and/or expensive to replace. This type of coverage is especially important for sole proprietors and their beneficiaries.

Startups most likely require two types of business insurance: general liability insurance and commercial property insurance. These two policies are often bundled into a business owners policy that’s typically offered at a discounted price.

Business insurance can be considered a startup cost. Business insurance also is typically considered a cost of doing business, and your premiums may be tax deductible. A tax professional can ensure you take all the business deductions available to you.

You may not need business insurance if you run your business as a sole proprietor with no employees or contractors. However, it’s still advisable to have basic insurance coverage (such as commercial property and general liability) to protect your business and its assets.

Startups can save on business insurance by raising their deductible, paying their premiums in full, opting for group rates, and bundling policies. Business owners without an established history of being responsible insurance carriers may have to pay more starting out.