If you’re in the process of starting your own business, you’ve put in a lot of your own sweat, money, and time. But despite all your hard work, the poor outlook for startups isn’t improving. Startups are notorious for failing prematurely. In fact, 56 percent of startups fail within the first four years, which is a pretty bleak outlook for startup ventures. These companies fail based on a high-risk assessment that doesn’t outweigh the reward and a lack of proper coverage when regular business claims arise.
You don’t want any part of your company to be taken away from you because of legal claims you can’t handle. You need to protect yourself and your assets with the proper insurance policies. There are a number of policy options for different companies and specific situations, but there are a few kinds of coverage that every startup needs.
1. General Liability Insurance
The first type of insurance startups should look into is liability, which every company needs. The average annual cost of $500-$3000 may seem high—until you compare it to the average cost of general liability claims, which reaches nearly $1 million. There are several policy options, but general liability will cover you for a variety of claims including bodily injury, property damage, personal injury, injury to a third party and other accidents that commonly arise in the workplace. These accidents could be as simple as someone slipping on a wet floor or a general contractor dropping a heavy tool when working on a construction site. Whatever accident happens, general liability insurance should cover it.
2. Product Liability Insurance
Any startup company that manufactures, distributes, or sells products needs product liability insurance. It guards against any financial loss that may occur as a result of a product defect. This is especially important to have if the defective product causes bodily harm to the consumer. For example, if you sell a tech device that delivers a small electrical shock when it reaches a certain temperature, you’ll have to recall the product, even if the injury is not substantial. Defects are common in the manufacturing world, and when it happens to you, causing the recall of thousands of products, you need to be protected from the financial loss.
3. Professional Liability Insurance
This insurance protects those who offer services to a customer, and is also known as errors and omissions insurance (E&O). It protects against claims of malpractice, errors, and negligence. It will also protect you if consumers use your words against you or claim that your advice led them astray. For example, if you own a small health clinic and one of your doctors recommends a certain ointment to help with acne, but the ointment causes them to break out in hives all over their body, E&O insurance will protect you legally and financially from claims of negligence and abuse.
4. Commercial Property Insurance
It takes property to run a business, and most of the time, it’s quite an expense. The term property can mean a variety of things in this situation, including lost income, business interruption, building, computers and other tech equipment, important documents, and cash. You never want to purchase something expensive without ensuring it will be protected in the event of an accident. Depending on your policy, property insurance covers a range of events that could harm your property, including fire, smoke damage, extreme weather, vandalism, and workplace accidents.
5. Home-Based Business Insurance
According to Forbes, more than 52 percent of small businesses are home-based. That’s thousands of startups beginning in owners’ homes, and if they think that their homeowners’ insurance policies will cover any of their business, they’re wrong. Those who start a business in their own home need insurance that is designed to specifically cover a home-based business. The insurance policy should cover property damage and any kind of liability associated with the business.
6. Workers’ Compensation
Workers’ compensation is not a luxury for most businesses, but a necessity. In fact, most jurisdictions require any business that pays employees a standard taxable wage to have a workers’ compensation policy, and not without reason. The average worker’s comp case costs business owners over $63K. In the event that any of your employees get hurt or have an accident, workers’ compensation will cover the cost of medical expenses, benefits, and wage replacements. You never want to cover these out of your own pocket, or worse, face a lawsuit if the workplace accident was your fault. Evading the workers’ compensation law can result in a severe penalty, not limited to a hefty fine.
7. Directors and Officers Insurance
Though you are the lifeblood of the company, you need to have some separation from your business in the form of an insurance policy. Directors and officers insurance protects your company from any actions taken by its officials that could harm its profits and operations. In the event that your directors give advice or a service to a client that’s not viewed as satisfactory, or administer to a client in any way that’s not professional, you’re at risk for legal proceedings. In short, this insurance policy protects you in the event that you lose your head during business hours.
8. Life Insurance
If you’re doing it right, your company will live years after you do, and once you’ve passed on, you don’t want any of your interests to crumble. You need life insurance to protect your family and your legacy after you pass on. This insurance is known as key man insurance, which offers a fixed monetary payout to provide funding for your family and the company, who will need to replace you when you’re gone. This is especially important in the event of an untimely death. You probably don’t want to think about your early death, but it’s an important component to consider if you want to prepare your business for all events.
9. Business Income Insurance
As you know, business startups fail often, and this insurance helps prevent that. It helps you replace the loss of business income in the event that your operations must be suspended. The insurance allots you an amount to cover the cost of rent or payroll even if you aren’t currently bringing in any revenue.
10. Unemployment Insurance
Downsizing is a nightmare no business owner wants to face, but sometimes there’s no avoiding it. In the event that you’re forced to let some employees go, you could be forced to pay the unemployment wage for your past employees. This is due to a government program meant to help those who have lost their jobs at no fault of their own. Unemployment insurance gives you a contingency to help pay for the unemployment wages until you’re released from financial responsibility.
Figuring out which types of insurance and policies you need for your startup company won’t be easy, but if you have a trusted insurance company on your side, it’ll be worth it. Contact us today if you have any questions or if you would like a quote.