Although the thought of paying premiums may be intimidating to a small business owner with limited funds, it’s a fact that all businesses should have insurance for their company. Not only do most landlords and investors require certain minimum policies, but it can also be incredibly helpful in the event of a tragedy or emergency.
Having business insurance can make sure that you are covered under many unforeseen circumstances such as property damage, employee injuries, and data breaches.
Finding the right insurance and knowing what policies you need is a challenge, but when you have the right information, it becomes much easier. You will need to know what types of insurance there are, which ones suit your business best, and where to get the best insurance for your needs. There are many options out there and being informed will help you make the right decision.
Table of Contents
What Types of Business Insurance for Startups Are There?
Many types of business insurance can protect you, but you are most likely to need one or some of the most common kinds.
These types of insurance cover most possibilities that may come up throughout your time running your business.
Some of these are optional, while others are an absolute necessity for your business to be safeguarded against almost inevitable situations.
| Insurance Type | Coverage |
|---|---|
| KEY PERSON INSURANCE | Covers the death or disability of any identified key person |
| EMPLOYMENT PRACTICES LIABILITY INSURANCE | Covers lawsuits related to hiring practices or employer-employee relationships |
| WORKER’S COMPENSATION INSURANCE | Covers pay and medical bills for employees who suffer work-related injuries |
| COMMERCIAL AUTO INSURANCE | Covers car accidents and other events in company-owned vehicles |
| CYBER LIABILITY INSURANCE | Covers costs associated with data breaches, including court fees and fines |
| PROFESSIONAL LIABILITY INSURANCE | Covers client allegations regarding professional work, e.g. negligence |
| COMMERCIAL PROPERTY INSURANCE | Covers property damages including equipment, facility, and furniture |
| GENERAL LIABILITY INSURANCE | Covers third-party lawsuits over a variety of claims such as injury and damage |
You may find that you need only a few of these options, or that you need all of them. Each individual business will need different plans depending on the business itself. Getting business insurance will help you cover multiple areas at once and protect your business from harm. Before you choose which policies you need, you should learn more about them.
Key Person Insurance
Key person insurance is a life or disability insurance policy that covers a VIP in your business. This could be a founder, an owner, or a key employee. In the event that this person becomes ill or dies, a key person insurance policy will pay a sum to the business to help you recover from the loss. This can be important in the case that an owner or founder passes away and the business is left in a sticky situation.
You will most commonly get key person insurance policies in the form of term policies, which protect the VIP usually for up to 30 years. At this point, the policy would need to be renewed if that person is still involved in the business and qualifies for this type of insurance.
Other types of key person insurance, such as whole life policies or disability policies are less common but can be beneficial in certain industries.
Employment Practices Liability Insurance
Employment practices liability insurance, also called EPLI, helps protect you in the case that a current, past, or prospective employee files a claim against you for unfairness or bad conduct. Businesses without employees will not need EPLI, but as soon as you begin to hire employees, you should consider it as an important option. EPLI can cover situations such as:
- Wrongful termination claims
- Breach of employment contract claims
- Sexual harassment claims
- Benefits mismanagement claims
The larger your team becomes, the more important EPLI is, as your risk of encountering one of these claims grows. Startups who have hired or plan to hire team members will want to get a solid EPLI policy in order to protect their business from the costly consequences of these types of suits.
Worker’s Compensation Insurance
Worker’s compensation insurance policies are the only type of business insurance required by law in most states. If you hire employees for your business, you’re required to have worker’s compensation insurance in order to protect both you and your employees.
The threshold for the number of employees varies from state to state. In the case that an employee suffers a work-related injury, you will need to have a worker’s compensation policy to cover that.
You’ll need to check your state and local laws regarding worker’s compensation before you begin hiring employees so that you are prepared when the time comes. In some cases, you will need a policy as soon as you hire your first employee.
Commercial Auto Insurance
If you drive a car or other vehicle for your business, you will need commercial auto insurance. At minimum, most states require that you get a liability policy in the case that you are involved in an at-fault accident and need to pay a claim.
However, it could strongly benefit you to get other policies as well, such as those that will cover medical payments for you or employees if you’re hurt in an accident.
If you use your vehicle for both personal use and commercial use, a personal auto policy is not enough. Most personal policies specifically exclude business use, so if you are driving your personal vehicle for work without a commercial policy, you’re technically driving uninsured.
Talk to an insurance agent to see if you can add a commercial policy to your personal policy rather than buying it standalone.
Cyber Liability Insurance
If you store any kind of customer personal information, such as credit card numbers, account login information, or contact information like email addresses, you’ll need a cyber liability policy to protect you in the case of a data breach.
If you don’t keep any of this information, it’s unlikely that you’ll need a cyber liability policy. However, most businesses these days do keep a variety of personal information from their clients to help with ease of purchase or contact. You’ll want to consider this type of policy, especially if any of the information you store is particularly sensitive.
If you personally store the client data, you’ll need first person cyber liability coverage. This covers court settlements, investigations into the data breach, and client outreach to both notify them and secure your good image after the breach.
If your business deals in cybersecurity and protects client data that is not on your network, you will need the third person cyber liability insurance in the case of a data breach on the client’s side.
Professional Liability Insurance
Some businesses may need professional liability insurance to protect from client suits regarding the quality of their work. Clients may accuse you of making mistakes in your work that cost them money or cause them injury, in which case professional liability insurance would cover that claim.
If you offer a service that relies on your specialized or expert conduct, you may be at risk for these types of claims.
Professional liability insurance also covers claims that you have breached a contract with a client. If you deal heavily in contracted work, a professional liability policy may be a necessity.
Businesses in certain industries may not need a professional liability policy, as they don’t offer the types of services that would fall under the policy. This includes restaurants and retailers, among others.
Commercial Property Insurance
Commercial property insurance covers a wide variety of claims that involve property damage or theft. This covers not only your building but anything your business owns, such as equipment and furnishings. In the case that any of this property is damaged by unforeseen circumstances like fire, storms, or vandalism, you will be covered under a commercial property policy.
It also covers theft in the case of a break-in or employee theft.
Property insurance is one of the most important types of insurance that you can have if you own a brick and mortar business, and especially if you own any kind of specialized equipment that your trade relies on. A property insurance policy will help you replace broken equipment in the case of certain damages, not including wear and tear or breaking due to normal use.
General Liability Insurance
The most common type of business insurance for startups is general liability insurance. If you deal with third parties, which consists of anyone who is not employed by your company, and there is any risk of bodily injury or physical damage to a client or their property, you will need a general liability policy to deal with it.
General liability insurance also covers situations in which you’re accused of using copyrighted material in advertising and any legal fees associated with a suit.
Most businesses will need some form of general liability insurance to provide for the inevitable case in which a client files suit. General liability insurance will not cover the areas that professional liability insurance will, so it may be beneficial to have both.
General liability insurance often also covers product liability, which means that if you manufacture a product or products, you may need general liability insurance as well.
How Much Does Business Insurance for Startups Cost?
The amount you pay for business insurance will depend on the policies you get and the industry you are in. For a general liability policy alone, you could pay as little as $400 a year, while key person insurance can cost up to $5,000 a year. As you purchase more coverage, the cost goes up, but the amount you could save by being protected also does.
| Insurance Type | Annual Premium |
|---|---|
| KEY PERSON INSURANCE | $300-$5,000 |
| COMMERCIAL AUTO INSURANCE | $1,200-$4,000 |
| CYBER LIABILITY INSURANCE | $1,000-$3,000 |
| PROFESSIONAL LIABILITY INSURANCE | $1,000-$3,000 |
| COMMERCIAL PROPERTY INSURANCE | $500-$3,500 |
| GENERAL LIABILITY INSURANCE | $400-$1,000 |
The premium you pay depends on a number of factors, such as the industry you are in and the amount of coverage you need. General liability and property insurance can cover up to millions of dollars, which will raise your premium. Having past incidents will also raise your premiums.
Businesses with physical locations will typically pay more on their general liability insurance due to the increased risks of bodily injury and property damage.
The good news is, most types of business insurance policies have low or relatively low deductibles. In fact, in the case of general liability insurance, cyber liability insurance, and key person insurance, you may not have a deductible at all.
Professional liability insurance typically has the highest deductible, but it’s still worth purchasing, as the deductible will often be much less than you would pay without insurance.
How Can I Save on Business Insurance for My Startup?
There are several ways you can save on your business insurance to help you afford it and to make it feel more worth the cost.
However, when it comes down to it, insurance can save you much more than you pay, especially when you use cost saving techniques to maximize your savings on your insurance plans.
- Install safety systems. Many providers will give you discounts if you have safety systems such as burglar alarms and fire sprinkler systems, the same way that health insurance providers will give discounts for preventative exams. The cost of installing the system will often quickly be paid back by the savings in your premium.
- Manage your claims history. Your premiums will be lower if you have a good history with no claims. This means that getting insurance earlier rather than after an incident is a good idea. You will pay less off the bat for your premium in addition to being prepared.
- Bundle your policies. Many providers offer a Business Owner Policy, or BOP, that bundles several types of insurance together. Getting this bundle will usually save you a fair amount over buying your policies individually. However, it’s important to make sure the BOP being offered covers all of your needs.
- Shop smart. Don’t just go with the first provider that you find; it’s important to compare rates and discuss prices with an agent or a broker. You may find that certain companies offer better premiums for your industry, and you can save quite a bit by looking around before you make a decision.
Which Business Insurance Providers Should I Consider?
Picking the right insurance provider is key to getting the policies and coverage that are right for you. You want an insurance provider that makes the process easier for you and gives you the coverage you need at a price you can afford.
A number of factors will influence what provider is best for you, primarily what industry your business is in. However, it may also be affected by the size of your business and your experience in the industry.
There are a few top providers that will offer you the best coverage at the best prices. What industry you’re in and the size of your business will affect which of these providers will be best for you.
| Insurance Provider | What Businesses Benefit Most |
|---|---|
| COVERWALLET | Small businesses looking for personalized insurance and complete guidance through the process |
| HISCOX | Home-based independent contractors who need affordable general and property liability insurance |
| CNA | Financial institutions, especially those with employees or independent agents operating under the company name |
| STATE FARM | Commercial auto companies who perform service transportation and deliveries (does not include livery) |
CoverWallet
If you have difficulty understanding insurance and don’t have the confidence to approach it on your own, you will benefit most from the personalized and individualized services of CoverWallet. CoverWallet provides insurance for all types of small businesses, from contractors to restauranteurs.
They offer the services of your own insurance agent, who will explain and handle all of your coverage needs.
CoverWallet is a great option for small businesses who are getting their business insurance for the first time, as they’ll walk you through the process and handle everything for you. CoverWallet provides all different types of business insurance for startups, from individual policies to BOPs.
Whatever kind of small business you have, and whatever type of insurance you need, CoverWallet has a solution.
Hiscox
Hiscox also provides small business insurance, and can deal with more esoteric types of policies due to their wealth of experience. They are one of the best options for independent contractors, specialists, and sole practitioners who work from home. This is an especially good option for those who need cyber liability insurance, as they provide up to $10 million in coverage for certain breaches.
If you are the only employee of your business and do not have a physical location other than your home, Hiscox is a good choice for you.
They offer a number of different types of business insurance to help you stay protected under any circumstances. They also provide automated services to save you time and money when it comes to managing your insurance.
CNA
Financial institutions will benefit most from CNA’s expertise and comprehensive insurance plans. This includes mortgage companies, investment firms, and insurance agencies, among others.
These businesses have unique liability concerns when it comes both to general and professional liability claims, and CNA can provide unique solutions to those situations.
CNA is not limited to the financial industry, but also provides a variety of solutions to industries across the board. CNA also conducts seminars on topics like risk management and claims management, both online and in person.
If you are looking for more information about your insurance policy and want to be informed about risk and claims, CNA is an excellent option.
State Farm
A very well known option in the insurance field, State Farm provides excellent small business insurance for businesses that deal primarily in the commercial automotive field, such as deliveries and transportation.
They have thousands of agents across the country to help you determine what policies are right for you, including general liability, commercial auto liability, and property liability insurance policies.
If you have increased exposure on the road due to high travel times or because your business operates primarily over the road, State Farm is a good choice for overall insurance and can provide all of the policies that you need.
State Farm also provides specific solutions for businesses at all stages of operation and will tailor your plan to the status and size of your business. Businesses at the startup stage will receive a specialized plan to help their business grow.
Conclusion
If you are considering business insurance for your startup, you should start looking before an incident happens to make sure your premiums are as low as possible.
Don’t forgo insurance due to hesitations on cost, and instead put in the time to investigate the ways you can save on your policies and still get the coverage you need.
Different businesses will need different policies depending on their size, industry, and maturity, and you’ll want to consider what aspects of your business are most prominent before you go looking for insurance.
Insurance is definitely worth it, as the small cost of being insured can far outweigh the consequences of a suit resulting from injury, damage, or a breach. If you’re looking for business insurance for your startup, options like CoverWallet can walk you through the process totally painlessly and ensure that you get the best coverage for your price.
The best option is to look for which providers are best for your industry and have an in-depth conversation with an insurance agent or a broker to determine which providers and plans are right for you.
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