Business Insurance for Startups
Find out why you need insurance cover for your startup, and some of the options you should consider.
A startup is a fledgling business delivering a new product or service and working its way towards becoming a fully-fledged company. However, in its infancy, a startup is extremely vulnerable and one accident or mistake could easily spell its downfall.
In business, your ability to be able to withstand litigation or recover from an unforeseen loss is crucial. That’s why businesses in general – and startups in particular – need insurance to cover the countless risks you face on a daily basis.
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What risks does your startup business face?
Every time a business opens its doors, it faces the possibility of disaster. And with limited funds to fall back on, even a minor setback could be a catastrophic event. Typical risks that you face in your startup include:
- Fire or theft. Premises damaged or destroyed and stock lost or stolen could spell the end for your struggling startup.
- Illness or injury. If your new business only has one or two principals, getting injured or sick could mean there’s no-one to keep things going while you recuperate.
- Loss of income. If business grinds to a halt for any reason, not having an income could force you to close your doors in a matter of weeks.
- Injury or property damage. If you, your employees, your products or your premises injure a third party or damage their property, you could be facing a lawsuit and liability costs you can’t afford to pay.
What types of cover are suitable for your startup businesses?
To get protection from specific risks, all businesses, including startups, need the following types of business insurance:
- Public liability insurance. This is not negotiable. If you operate bricks-and-mortar premises visited by the public, you must have protection from litigation in case people injure themselves or you damage their property.
- Product liability insurance. If you manufacture a product that consumers use, you must have protection from litigation in case they injure themselves or suffer a loss because of your product.
- Cyber liability insurance. This protects you from online risks such as fraud or data breaches. This is a real concern for businesses who operate in the online space.
- Property insurance. This includes protection for your business premises and its contents against loss or damage from fire, theft or natural disasters. This is often a requirement of any commercial leasing arrangement.
- Worker compensation. If your startup has employees, it’s compulsory to take out worker compensation cover for them in case they suffer a work-related illness or injury.
- Key person insurance. If your startup consists of one or two people, it’s vital to have protection against the loss of a key person in the business. This would give you the funds to find and employ a suitable replacement in their absence.
|Insurance type||Discovery stage||Efficiency stage|
|Public liability insurance||Need cover||Need cover||Need cover|
|Product liability insurance||Need cover||Need cover||Need cover|
|Cyber liability insurance||Need cover||Need cover||Need cover|
|Workers compensation||Might need cover||Need cover||Need cover|
|Key person insurance||Won't need this cover||Need cover||Need cover|
What if I have an online business?
As well as the above types of cover, a startup which is also an Internet business requires additional insurance to protect itself from a variety of online risks.
This is known as Cyber Insurance, a relatively new form of cover which addresses six main areas of risk:
- Technology professional services. A startup providing online technical services such as web hosting or cloud services needs protection in case its provision (or lack of provision) of those services causes someone else to suffer a loss.
- Multimedia liability. Startups need protection against unintentional copyright breaches, which occur frequently with online content.
- Security and privacy liability. Startups storing and managing customer data need protection against potential data losses and breaches of privacy.
- Customer support and reputational expenses. A startup that suffers a data loss incident needs funds to pay for damage control and public relations to help restore their reputation.
- Data recovery and business interruption/loss of income. A startup which suffers a data breach or loss needs funds to pay for data recovery and for lost income while the business is not able to operate.
- Cyber extortion. A startup that has its critical data held hostage through cyber extortion needs funds to pay the ransom and for forensic investigation costs.
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