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What Does Business Insurance Cost for a Startup?

December 6, 2019 | by Viveka Krishnaswamy
Reviewed by real estate expert Jonathan Wasserstrum

This is by Emily Lazration of CoverWallet.

There are several factors to consider when launching a startup, and one of the most important is protecting your business. Aside from adhering to state laws and regulations, as well as following best practices in the workplace, it’s crucial to have business insurance.

Unfortunately, accidents can happen when you least expect them. Carrying insurance is your best bet in making sure that your startup can continue to operate in the event of an unfortunate scenario. Business insurance comes in many forms, and your needs will evolve as you enhance your product offering, hire new team members, move offices, grow your customer base, and raise funds.

Here are five common insurance policies to consider for your startup:

  • General Liability Insurance – With this policy, your business is protected against claims associated with third-party bodily injuries and property damage. Bear in mind that a single claim can cripple your startup, so make sure to protect your business with this policy.
  • Commercial Property Insurance – If your business’ property gets damaged by a fire or another type of accident, this insurance will cover the expenses incurred from property damage or damaged business assets.
  • Workers’ Compensation Insurance – In most states, as soon as you hire your first employee, you will be required to purchase this policy. If an employee sustains bodily injuries or gets sick as a result of work-related activity, this type of insurance will cover the medical and rehabilitation costs, legal fees, as well as the salaries lost when the affected employee needs to recover.
  • Professional Liability Insurance – This policy is ideal if your startup provides professional, advertising or consulting services. Professional Liability will protect your business against financial losses incurred by your clients as a result of negligence or mistakes made while performing your job responsibilities. Professional Liability, which also goes by Errors and Omissions (E&O) is typically purchased by B2B companies that have service agreements in place, with the aim of protecting the business in case a mistake is made.
  • Directors & Officers Insurance – Is your startup looking for investors or trying to raise venture capital funding? Consider purchasing Directors & Officers insurance. This policy, which many investors require startups to carry, protects senior management against claims of neglect, misconduct, or misrepresentation. 

Calculator and accounting sheet

How Much Does Business Insurance Cost for a Startup?

Many startup founders delay buying insurance since they see it as an unnecessary expense. With all of the items that require attention and financial resources, purchasing insurance may not be on top of your to-do list. However, continuing to push insurance to the bottom of the to-do list only puts your business at a higher risk.

The reality is, you should be protecting your business as soon as possible. Insurance is a wise investment that will keep your operations going in case of an accident that could lead to huge financial loss. The cost of business insurance is minuscule compared to the expenses and inconvenience of dealing with a lawsuit or liability claim.

The business insurance cost for a startup depends on several factors:

  • Nature of the business – What are the products or services that you offer? What are the risks involved? How big is your business? The cost of the policies varies depending on the size of your business and industry, as well as your risk profile. For example, insurance companies will also investigate your claims history. Having one or more lawsuits filed against you or your business may be seen as a higher risk by insurance companies, and you may have higher premiums compared to businesses that do not have any claims against them.
  • Type and number of policies needed – Do you have employees? Company vehicles? Office space? In general, the total cost of insurance will increase if you need multiple types of coverage. But don’t let this discourage you from buying the policies you need. In some cases, you can actually bundle policies into what’s known as a Business Owners Policy (BOP). A BOP usually combines General Liability and Commercial Property, and sometimes, Business Interruption insurance. Combining policies can offer cost-saving benefits when compared to buying each policy separately.
  • Industry – Startups span all types of industries, and each industry presents its own risks and considerations. A company focused on enhancing trucking fleet operations will need to carry a policy designed to protect vehicles, whereas a startup for accountants will likely need to purchase Professional Liability insurance. It’s essential to identify the vulnerabilities associated with the industry you work in to determine which policies to buy and what the total business insurance cost will be.

Overall, according to a study conducted by Insureon of business insurance policies for companies with 10 or fewer employees, business insurance on average costs $1,281 annually, with a median cost of $584.

So, does your startup really need business insurance? The answer is YES. Choosing the right type of insurance for your startup can be daunting and time-consuming, but by working with a company that specializes in insurance for high-growth companies, you’ll soon have the sense of security that you need so you can focus on growing your business.

 

Emily is the Content Marketing Specialist at CoverWallet, a tech company that makes it easy for businesses to understand, buy and manage commercial insurance online. She has written for several outlets including Inc., Ooma, and Fundera covering small business news and advice. For information about insurance for high-growth companies, check out CoverWallet’s dedicated platform for startups called CoverStartups.

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