A business venture’s foundation needs to be laid strong and risk-free, irrespective of the industry it is catering to. Startup insurance is the only way to lay this foundation and protect your business from any unforeseen and high-risk situations.
Additionally, the changed momentum of business models, enlarged visions of complete transparency, and digitalization have introduced several risk exposure factors.
Consequently, startups need to align their insurance plans with their operations at a very early stage. This ultimately ensures precaution against severe liability, which could overturn the business in the nascent stage.
At present, entrepreneurs can choose from a comprehensive portfolio of insurance policies for their startups. Apart from the mandatory regulations and compliance standards, several other voluntary insurance policies are also available.
Overall, startup insurance delivers risk management against your businesses’ assets, investors’ interests, and employees. They also help your business create a defense line against catastrophic events like claims, liabilities, and unnecessary litigations.
In this article, you will be acquainted with the what, why, and how of startup insurance.
What is the need for startup insurance?
As an entrepreneur, your priority should be to minimize risk at all levels for stakeholders. Startup insurance is the best way to achieve this.
A protected and well-insured business enables:
- Increased investor interest and a secure return on investment proposition.
- Sense of sustainability in terms of operational efficiency, contingent liability, and risk mapping that empowers better resource hiring.
- Peace of mind to optimize work efficiency and shield against any flaws and falters.
5 steps to find the right startup insurance policy
Step 1: Analyze and define your risk exposure
You need to start with running a complete risk assessment for your startup and audit all the potential liabilities.
This helps in mapping the possible factors that determine the choice of insurance and the kind of insurance customization your startup needs.
Step 2: Do a comparative analysis of available suppliers
When you do a comparative study of the various insurance products offered by the insurance companies, you make an informed decision for your startup.
Based on your business requirements, you can narrow down suppliers and products to ensure you get the best value for money.
Step 3: Check insurance quality
Don’t be swayed by the cheap cost offered by insurers. Most of these offers are a hoax.
Instead, for your startup, you need to focus on the quality of insurance, coverage, and period. You also need to read the policy document thoroughly before investing.
Step 4: Look for smart alternatives
You can decide on bundle policies and add on coverage instead of buying individual insurance policies for your startup.
It is a good idea to enquire about alternate policies and customizations based on your business needs. This will help you get a good value for your money.
Step 5: Consider your long-term business goals
This is an important aspect to consider before investing in business insurance. The long-term goals of your startup play a vital role in deciding the risk. This consequently helps in planning insurance around it.
For example, people-centric startups require a more profound employee liability insurance while a travel startup would emphasize more on vehicular/travel insurance.
What are the legally required startup insurance policies?
- Every venture, business, or startup requires employer liability insurance as soon as they hire staff, no matter full-time, part-time, contractual, or freelancer.
- In the travel business or travel service, providers need car insurance as a legal requirement.
- Companies enrolled as payment initiation service providers (PISP) or account information service providers (AISP) under the Payment Service Directive (PSD2) mandatorily require compliant PI (Professional Indemnity) insurance.
6 essential insurance policies for any startup business
1. Comprehensive general liability insurance
This insurance is required to averse any third party injury cost compensation claims. Your insurer will also take care of the defense cost.
Safeguards company’s assets in case of alleged third party claims for injury, property damage, personal property damage, or advertising injury.
2. Directors and officers (D&O) liability insurance
High-valued or renowned business professionals at present stress on this insurance coverage. This policy protects the directors and other officers’ interest from litigations concerning their business decisions.
It is also referred to as ‘Side A’ coverage. Startups opting for this insurance policy must remember that timely notice is the key to preserve this coverage.
Alleged claims for wrongful decision making of directors and officers leading to diluted stock value or assets.
3. Workers compensation and employers liability insurance
This insurance is legally mandatory for every business, irrespective of employment type. Failure to adhere to this results in heavy penalties.
- Protects against employees’ claim of injury during work time.
- Coverage for medical treatments, disability, or death.
4. Cyber liability insurance
This is one of the most essential insurance policies that every company or startup should opt for. Primary drivers include the rising adoption of cloud services, cloud computation, digitalization.
The digitalized business environment has led to massive cases of cybercrimes, cyber theft, data misuse, etc.
- Minimizes cost and damage occurred by cyber theft.
- It Covers GDPR (General Data Protection Regulation) penalties.
- Protection against data protection lines.
- Legal and compensation cost.
- Extortion and system rectification cost.
- PR expenses and system downtime loss.
5. First-party property insurance
The asset value within the office premises of equipment, furniture, or other property is of high value. This too shall be taken into consideration if the investment in property and interior designing is colossal. Under this cover, the best form is ‘All Risk’ coverage.
- Protection against all damage to your company’s building or equipment, if not exclusively excluded.
- You can opt for the inclusion of fire insurance, as well.
- Insurance for server damages.
- Add-ons are available for business interruption losses.
6. Errors and omissions coverage policy
Since your startup is relatively new, errors or disruptions in services are bound to occur. This insurance policy safeguards the exaggeration of petty mistakes into an existential crisis.
- Protection against third party claims of loss because of error or omission by your company at the service period.
- Offers legal fees, settlements, or judgment fees.
Other insurance policies based on the nature of your startup
|Nature of Business
|Professional Indemnity Insurance
|Safeguards and defends against customer’s claims of failed delivery from your consultation or advice.
|Event Management/Construction/Real Estate/etc.
|Public Liability Insurance
|Protects against any damage caused to a third party by your team/member.
|Content and Equipment Insurance
|Covers every item in your office including computers, furniture, documents, etc.
|Media Liability Cover
|Protects against intellectual property theft.
|PSD2 Professional Indemnity Cover (PII)
|Protects against regulatory investigations, defense costs, and legally insured penalties.
|Employment Practices Liability
|Provides defending cost against suits filed by employees or government agency investigation.
|Vehicle Insurance (especially for business vehicles)
|Safeguards against vehicle theft, accident, third party accident, etc.
|Key Person Insurance
|Offers cash benefit at the death/disablement of a key business employee.
|Group Health Insurance
Covers medical requirements for employees and their dependents.
Any business setup takes a lot of effort, investment, and time to build up and run a smooth function.
Insurance policies act as the lubricant for effective operational efficiency and safeguard against several contingencies.
Therefore, insurance is a necessary investment for small businesses, startups, or big corporates.
Having said that, it is important that you check the policies and coverage details, and read the offer documents thoroughly before investing.