4 Types of Insurance That Every Startup Business Needs
Today's guest post comes from Charong Chow who shares the importance of having the proper insurance to protect your business:
The startup world is notoriously fast-paced. Entrepreneurs often find themselves working around the clock, with minimal breaks for sleep, to bring their business ideas to fruition. There are so many things to be done—and often, not many people to do them—that it's easy for a few things to fall by the wayside. All too often, one of the things that go overlooked is business insurance.
Here's the thing: if you are willing to work 100-plus hour weeks for your business, then it is clearly an asset you value. What other valuable asset in your life would you leave uninsured? Not your house. Not your car. Not your health. So why would you leave your business unprotected?
The answer, of course, is that you shouldn't. While a few things are going to be delayed or overlooked in the rush to grow your fledgling business, you just cannot let insurance be one of them. Here are four types of insurance that your startup needs right now:
If your startup is like most entrepreneurial ventures, one of your big goals probably involves attracting high-profile investors to your board. Getting experienced and successful people from your industry engaged with your business is a terrific way to add to your brain trust, expand your resources, and trigger new growth. It's also something that's never going to happen unless you have a D&O insurance policy.
"D&O" stands for "directors and officers," or the people you're trying to add to your board. D&O insurance, meanwhile, is a type of liability coverage that protects directors and officers from litigation over the decisions they make. Running a business is all about making tough choices. Some of those are bound to be the right ones, while others might backfire and negatively impact customers, clients, employees, investors, or shareholders. These mistakes can lead to lawsuits over mismanagement—legal claims that are usually directed at directors and officers.
To protect themselves from potential financial ruin, then, most experienced directors and officers will demand that a company have D&O coverage before they get involved. In other words, if you want to attract the best people to your board, you need to have a D&O insurance policy in place to sway them.
Commercial General Liability Insurance
D&O insurance is a type of liability coverage that protects only a small number of individuals within your organization. Commercial General Liability (CGL), meanwhile, is a further-reaching policy that covers your entire business against general liability claims. For instance, if a customer visiting your startup headquarters slips, falls, and breaks his arm, he could potentially sue your business for causing his injury. CGL coverage kicks into effect in such situations, paying for legal expenses, settlement costs, and or medical fees. Similarly, if someone accused your business of infringing upon her privacy rights or slandering her name, CGL coverage would again provide protection.
Even if you can't picture a likely scenario where someone could accuse your business of causing bodily injury, property damage, or reputational damage, the truth is that you never know. A lawsuit can be devastating for any business, but cash-strapped startups are often the most vulnerable. Having CGL insurance as a "just in case" measure will help prevent a scenario where legal costs put a premature end to your entrepreneurial dream.
There are many startups out there right now, thanks in part to modern technology and the sheer power of the internet. This rise of entrepreneurial businesses is a good thing for the economy, but it might also be an excellent thing for cybercriminals. With so many startups doing so much of their business in the cloud and online—often without proper cybersecurity protections—hackers' lives have become all too easy.
If your startup uses any technology to do business, you need cyber insurance. Hacks, breaches, and viruses can jeopardize customer information, company trade secrets, financial accounts, important files, and more. Cyber insurance will cover your business against things such as data loss, cyber extortion, and business interruption. It will also include notification costs if customer or client information is compromised, as well as legal expenses and more.
Cyber insurance is not a stand-in for good cybersecurity. On the contrary, you also need to do what you can to protect your computers, your network, your servers, and your data. Antivirus software, firewalls, and employee training are all excellent places to start. In the event of a hack, breach, or virus, though, cyber insurance will at least help to keep your business above water.
If you have employees, you probably need workers' compensation insurance for your startup. Not only is this type of coverage recommended, but it is also legally required in most parts of the United States. As soon as your business has employees who make taxable income from your business, workers' compensation coverage needs to be in place. This type of coverage will pay medical costs and lost wages for any employee who gets hurt or falls ill while on the job. In exchange for these benefits, the employee forgoes any right to sue your business. In other words, workers' comp coverage protects both your employees and your business as a whole.
Other Types of Insurance Coverage
These four types of insurance policies should be active at any startup, but they aren't necessarily the only insurance you will need. Depending on how and where your business operates, you may need property insurance to protect your premises, your equipment, and your inventory (if applicable). Even if you are working out of your house, you need to talk to a broker about insuring your home for business use. If your company owns vehicles, you will also need a commercial auto policy in place.
With that said, the four policies discussed above—D&O, CGL, cyber, and workers' compensation—are a suitable place to start for any startup. With these types of coverage in place, you can at least take comfort in knowing that your business is protected against many of the most common threats and risks.
Charong Chow is the Head of Content for Embroker, the insurance brokerage built for the way business is done today. Embroker pairs data and technology with top-tier service from the best brokers to make it easy to reduce the cost of risk.