• February 26, 2016

A Guide to Choosing Business Insurance for your Startup

A Guide to Choosing Business Insurance for your Startup

When starting up a business, entrepreneurs should consider the ways they can protect their team, their business, and their investment. Business insurance comes in many shapes and forms, and depending on your business type, should be purchased almost immediately to protect against the risks of owning and operating a small business.

We are going to dive into the basics of the insurance you should consider, and the resources for each that can help you in your decision process.

General liability insurance This insurance coverage can protect your business from a variety of claims including bodily injury, property damage, personal injury and others that can arise from day-to-day operations. The U.S. Small Business Administration does a great job outlining how it works and what coverage is right for your business.

Key takeaways:

  • General liability insurance can be purchased on its own, but it can also be included as part of a Business Owner’s Policy (BOP) which bundles liability and property insurance into one policy.
  • Liability insurance protects a company’s assets and pays for obligations – medical costs, legal defense, tenant protection if you rent, and against claims of false or misleading advertising, including libel, slander, and copyright infringement.
  • The coverage you need depends on the type of business you are in and the perceived risk associated with it.

Commercial Property insurance If you have property, you need this type of insurance – as it covers loss and damage of many types of company property (think furniture, equipment, computers, etc.). Providers like Nationwide & NFP discuss the ins-and-outs of property insurance and what you need to know when choosing a coverage plan.

Key takeaways:

  • Basic property insurance typically covers losses caused by fires, explosions, theft, damage from vehicles, acts of vandalism, and additional coverage can be added for location specific risks, such as earthquakes.
  • It’s essential your plan covers your building, office equipment, inventory and outdoor items on the premises.
  • Commercial property insurance plans pay for losses based on the replacement cost of the item or its actual cash value.

D&O Insurance This coverage protects directors and officers if they are personally sued or if the company was sued by investors, employees, vendors, competitors, and customers, etc. This (albeit somewhat older) article from Inc. outlines why you need to consider D&O.

Key takeaways:

  • Businesses of all size and stage have officers and directors who can be targeted by litigants over their management of company affairs. Many insurance companies now offer small business executive liability coverage starting at $1,500 per year to protect directors and officers.
  • D&O insurance costs are based on many different factors – typically small companies are low-risk and could pay as little as $500 per year per million in premiums.
  • D&O insurers look at various aspects of the business, including the type of business, profit, prior claims, debt, etc., when applying rates.

Cyber Liability InsuranceAs this Inc. article points out, “imagine a hacker has accessed your customers’ names and contact information–and worse–your employees’ social security numbers. On top of that, your website is disabled so that you can’t take orders or collect the payments you need to stay in business.” Sounds pretty scary, right? In addition to protecting your assets, your cyber insurance provider can also correctly guide you through the process should you get hacked – especially since the FTC and FCC can assess fines and penalties based on how you notify customers.

Key takeaways:

  • Coverage can cost anywhere from less than $1,000 per year for small businesses to millions of dollars a year for the bigger corporations.
  • General liability insurance can cover some costs associated with a data breach, but likely won’t cover everything.
  • If your cloud provider messes up the handling of your data, an insurance policy can protect you.

Commercial auto insurance If you have employees that drive for your business, this is critical. This will protect your employees, vehicles, and your business from accidents on the road as a result of road conditions, weather and other drivers. This Entrepreneur article covers four things you need to know about auto insurance.

Key takeaways:

  • Business coverage may cost more than a personal vehicle policy.
  • Your policy might vary based on what you are transporting.
  • Your drivers’ driving records will likely come into consideration.

Commercial umbrella insurance Possibly not necessary for a small business, it’s considered when your primary liability insurance is exhausted or for situations & edge cases where there is no primary insurance. Do a complete audit of your business and the scenarios in which something could happen and you wouldn’t be covered (do you entertain clients? you might need this for liquor liability – BUT make sure that is covered in the plan as it can sometimes be excluded). PropertyCasualty360 covers the things you need to know about acquiring this coverage.

Key takeaways:

  • Almost all umbrella liability contracts have provisions that protect the right of the umbrella insurer to take over or participate in the defense of a claim that may involve it.
  • A requirement for underlying liability limits of $1 million is common.

Health insurance while not required to provide health insurance, the Affordable Care Act requires employers to provide certain information about the SHOP Marketplace. Here’s a great article on how the Affordable Care Act affects small businesses on HealthCare.gov.

Required Insurance for Businesses The U.S. Small Business Administration also lays out the types of insurance you might be required to purchase depending on where you’re located and type of business.

  • Workers’ compensation insurance – Workers compensation coverage is required for all employers that have five or more employees and varies greatly by state. For instance, in Massachusetts, all businesses must carry workers’ compensation insurance coverage regardless of the amount of hours worked, including owners that are considered employees.
  • Unemployment insurance – Most states require employer contribution in some form to unemployment benefits for workers. For instance, in Massachusetts, if you are a private, for-profit employer, the Massachusetts Unemployment Insurance law requires you to contribute to the UI Trust Fund if you have employees working one or more days in 13 weeks during a calendar year and/or you pay wages of $1,500 or more in any calendar quarter.
  • Disability insurance – Some states require employers cover non-work related sickness or injury, including California, Hawaii, New Jersey, New York, Puerto Rico, and Rhode Island.

Taking on risk has many meanings when starting a business – and in this case, you can protect yourself and your investment with business insurance. Want help connecting with the right provider for your specific business? We can do the research & qualifying for you – just ask us.