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Business Insurance Cost for Startups

Business Insurance for Startups Cost

Insurance will prove to be vital for any business that strives to operate safely and have any legitimate chance of succeeding. When you choose the right type of policy, you will not only encourage investments and any other kinds of business partnerships but will also give comfort to your employees. Choosing the type of insurance can prove to be pretty daunting, considering the many types of coverage available and all of the factors you will have to consider. This article should make it easier for you to understand the cost of business insurance for startups and will help you decide whether you need one or not.

How Much Does Business Insurance for Startups Cost?

The actual cost you should expect for business insurance when launching a startup will vary quite a lot based mostly on the industry you work in, the actual coverage, and other details regarding your business. If you opt for a basic coverage policy for a smaller business, you will have to pay around $700 per year. As businesses become larger and with every policy you add to your insurance plan, the price will rise, sometimes reaching annual rates of even $5,500 or more.

What is Business Insurance for Startups?

Although startups have this vibe around them completely different from that of a mature company and they might even function a little differently, this shouldn’t be a reason for the insurance coverage to be less comprehensive. Keep in mind that your startup might have to fold even before it gets a chance to shine if it faces claims or losses that it is unable to defend or pay. This is why business insurance for startups was created. To give you and your business the protection needed to have a real shot of succeeding.

You might also like our articles on the cost of small business insurance, commercial property insurance, or health insurance.

What Does Business Insurance for Startups Cover?

You should get business insurance for your startup to protect the company from different types of claims, including:

  • Employee illness or injuries
  • Professional errors
  • Lost revenue due to business interruption during a covered claim
  • Lawsuits for defamation of character
  • Theft or loss of office inventory, supplies, or equipment
  • On-site accidents

Your specific list of situations covered by the insurance will depend on the policy package you will go for.

You will usually have the possibility of getting a general policy that will cover all of the basic needs, but if you want to be protected against risks like flood damage or other particular issues, you will have to get a specific insurance package.

Furthermore, if you want to operate as a sole proprietor, then you should know that business insurance for startups won’t be enough to cover your personal assets. This type of enterprise will have you personally responsible for claims or losses against the company. A great way of protecting yourself will be by creating an LLC (limited liability company) to separate all liabilities and assets of the business from yourself as an individual.

Who Needs Business Insurance for Startups?

As you know, any startup will be very fragile for a while after its launch, and big damages or losses can shut it down for good. You will need business insurance especially if any of the following will apply to your business model:

  • Provide advice or service
  • Have employees
  • Advertise
  • Have assets
  • Rent business equipment
  • Own business property
  • Work with customers or clients

Different Types of Insurance You Could Get

The coverage you will get for your startup will depend on the industry you operate in, the stage of your business’ development, and the expected risks.

The first type of insurance coverage will involve the discovery of your brand. Your startup will be in this category if it is F&F or self-funded, has very few or even no employees, and is in the stage of developing a product. When your business is in this stage, you will have to consider the next types of policies:

  • Cyber Liability Insurance: This insurance will be in place to cover your financial losses which would result from any cyber incidents or data breaches. These policies generally protect you both from damages caused by third parties, like intentional harm done by an outside source as a result of your company’s data breach, and first-party issues, when the damages will be caused by your company directly.
  • Property Insurance: This will be in place to provide coverage for any physical assets that get damaged or lost. This type of policy will generally cover any lost income caused by service interruption and will also pay to repair or replace the affected item.
  • General Liability Insurance: This is an insurance type designed to protect your company against all kinds of claims, from property damage to injury or even losses from accidents that happened on your property or any mishaps caused by your services or products.

Insurance Policy for StartupThe next important stage in your company’s development will involve Efficiency. You can consider that your company has reached this point when you have successfully launched a product, are actively looking to hire, and managed to raise more than $1 million. These achievements will also require additional protection in the form of:

  • Key Man Insurance: The company will be the beneficiary of this life insurance policy, which it will purchase on the life of a key executive.
  • Directors and Officers Insurance: This plan is designed to cover all members of the board of directors, including executives and founders, against claims of fraud, unfair competition, theft, management misconduct, wrongful acts, and much more.
  • Workers’ Compensation Insurance: Before getting this type of insurance, make sure you’re not already covered by the other policies already in place. This is a policy that will cover the lost wages and treatment of employees that will get injured or ill due to the job or while on the job.

The last stage will involve scaling the business. This is the place where most startup launchers want to get. It will be when you have a growing client base and revenue, have a working HR department, and have already gone through a few rounds of founding. This is when you will need:

  • Employment Practices Liability Insurance: This will usually cover any claims made by employees that state that their legal rights have been breached. Among these are wrongful termination, discrimination, and sexual harassment.

How to spend less?

  • Bundle policies: Most insurers will gladly offer discounted rates if you combine certain types of coverages or plans.
  • Plan ahead: You could avoid work interruptions and save a lot of money on premiums if you try to anticipate your needs and go for certain coverages even before actually needing them.
  • Compare quotes: Different insurance providers will offer you different policy costs. To get a bunch of quotes from different companies with just one application, you should work with an independent agent. This will enable you to compare the rates before going for a policy or another.

FAQ

Why is insurance for startups important?

Proper insurance will have your customers feeling safe, will attract qualified employees, and will offer you peace of mind, while also engaging investors.

Is business insurance mandatory for startups?

The short answer is no, business insurance isn’t mandatory for startups, in general. Even so, your clients, third parties, and even investors will require certain coverage to trust your business. When it comes to workers’ compensation insurance, this one is a must in most states.

Why does my startup need business insurance?

A startup is a very fragile entity. It can get taken down pretty quickly by a lawsuit or early losses. The protection the business insurance will give startups will far outweigh its costs.

Conclusion

When launching a startup, we consider that it is vital to also get business insurance. There is no point in taking the risk of a financial setback, as potential liabilities will basically be the same regardless of whether the company is profitable or not. When you understand the needs of your company based on its development stage and know the actual cost of business insurance for startups, you can get the policy that best covers any potential risks you might face. This will help you feel safer, knowing that you and your business will be protected and will have a real shot at success.

Alec Pow
Latest posts by Alec Pow
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