Small business insurance protects startups’ assets when misfortune strikes. General liability, for instance, covers third-party lawsuits. Commercial property insures their business equipment and office space. Startups can usually combine this coverage in a business owner’s policy (BOP). Most BOPs include business interruption coverage too. BOPs cost between $500 and $3,500 a year.
Business insurance is essential for your startup’s survival. The small business specialists at The Hartford can get you the right coverage in just minutes. You can get a free, no-obligation quote online in minutes.
How Small Business Insurance Works for Startups
Just about every startup needs general liability and commercial property coverage, so most carriers bundle them in a BOP. By combining coverage, carriers can offer them at a lower rate. BOPs typically cost $500 to $3,500 a year. However, standalone general liability can cost as much as $600 per year.
Depending on your business, carriers may add other policies to your BOPs. For instance, startups that offer professional advice can be sued for negligence. That’s typically covered by professional liability insurance, so carriers may include that in a BOP when it’s appropriate.
Who Needs Business Insurance?
Not having coverage puts your business and, sometimes, your personal assets at risk. According to the Insurance Information Institute, 40% of small businesses do not reopen after a disaster and another 25% close after a year.
As a result, startups need business insurance if they:
- Work with customers or clients
- Own business property
- Rent business equipment
- Advertise their business
- Hire employees
- Provide professional advice
- Want to protect their personal assets
Additionally, many startups operate as sole proprietors. This is the easiest business entity to form, but it doesn’t separate business and personal assets. As a result, lawsuits that go against your business can drain your personal savings account.
Forming a limited liability company (LLC) reduces the risk to your personal savings but not your business assets. Lawsuits over customer injuries and negligence can hurt your startup and make business insurance a smart investment. Learn more in our article on LLC Insurance.
Top Business Insurance Companies for Startups
|The Hartford||Startups looking to tailor their BOP with endorsements|
|Hiscox||Startups that need cyber liability insurance|
|CNA||Startups looking for risk management tips|
|State Farm||Startups looking to work with a local agent|
|USLI||Low-risk startups that need affordable coverage|
With more than a million small business clients, The Hartford was one of the first insurers to dedicate a team specifically to small business insurance. Recent rankings put it in the top 10 carriers for commercial lines and workers’ compensation.
The Hartford’s experience insuring startups shows in its Stretch endorsements. These endorsements are available in many top industries and are a cost-effective way to increase the coverage in your BOP.
Hiscox specializes in small business insurance, typically focusing on the risks other insurers can’t write. The company’s depth of experience allows them to develop innovative products designed for multiple markets.
Cyber insurance is one of the policies Hiscox does especially well. It has the capacity for $10 million in data and network breaches, so it can usually write policies for the startups that face cyber risk.
CNA’s size and experience mean it can write a variety of business insurance policies across a number of industries. It offers quick claims services and flexible payment plans, including pay-as-you-go workers’ compensation insurance.
Where CNA stands out is its risk management resources. Policyholders can learn about business continuity, claims management, and other risk management topics through in-person classes, online tools, and webinars.
State Farm is a large, well-known insurer that offers a suite of small business insurance policies for startups. The company distributes its products through a network of 19,000 agents who can help you identify risk and purchase the appropriate policies, including BOP, professional liability, and individual health coverage.
Working with a State Farm agent can give startup owners confidence that they’re getting the right coverage for their business. Plus, each agent is a small business owner, so they understand the importance of risk management from both sides of the desk.
USLI may be a lesser-known insurer, but it’s a Berkshire Hathaway company and has an A++ rating from A.M. Best. The company offers basic small business insurance, plus a select group of specialty products in a few industries, including nonprofits, contractors, and schools.
Its specialty is writing low-premium policies for low-risk small businesses. As a bonus, USLI lets you pay bills and file claims online.
8 Types of Business Insurance for Startups
General liability and property insurance are fundamental business policies. However, your business may need other coverage. For example, many startups get workers’ compensation once they start hiring staff. Some also buy cyber liability if they are responsible for client data or networks. The insurance your startup needs depends on what you do and how you do it.
Most Common Types of Small Business Insurance for Startups
|Type of Insurance|
|General Liability Insurance||Third-party lawsuits over property damage, bodily injury, and advertising injury|
|Commercial Property Insurance||Damage to business-owned property, including equipment, office space, furniture, and fixtures|
|Professional Liability Insurance||Client’s allegations of negligence and E&Os in professional work|
|Cyber Liability Insurance||Costs associated with a data breach, including fines, court costs, and civil awards|
|Commercial Auto Insurance||Costs associated with car accidents and other events for business-owned vehicles|
|Workers’ Compensation Insurance||Employees’ medical bills and lost wages when they suffer a work-related illness or injury|
|Employment Practices Liability insurance||Costs associated with lawsuits involving the hiring process and employer-employee relationships|
|Key Person Insurance||Death or disability of designated key employee|
There’s no one policy for startups. Instead, you need business insurance for the risks your startup faces, like lawsuits and property damage. Each risk is covered by a different policy, so you want to know which ones are a problem for your business so you can get the appropriate policies.
1. General Liability Insurance for Startups
General liability insurance covers third-party claims of bodily injury, property damage, and advertising injury. Third parties are essentially people who aren’t employees and can include anyone who visits your business.
Here are some examples of how general liability covers your startup:
- Bodily injury: If a delivery person slips on your wet floor, general liability covers his or her medical bills and your legal fees if they sue
- Property damage: If a fire in your workspace causes property damage for the business owner next door, general liability covers the repairs
- Advertising injury: If a business owner claims you used their copyrighted material, general liability covers your legal fee when they sue
Most general liability insurance also covers product liability, so businesses that sell, manufacture, or distribute consumer goods also need coverage. However, it doesn’t include liabilities that stem from your position as an employer or your professional services. You need other types of insurance for those liabilities.
2. Commercial Property Insurance for Startups
Commercial property insurance covers the value of property owned by your business, including fixtures, furniture, equipment, and physical location. When a covered event causes damage, your insurer pays the insured amount so you can make repairs.
Most commercial property policy covers damage caused by:
Startups with minimal property exposures like freelancers may forgo the coverage. However, before you decide you can skip property insurance, you want to weigh the risk of catastrophe and your ability to recover. If you can’t operate without certain equipment, it may make sense to insure it.
3. Professional Liability Insurance for Startups
Professional liability insurance, sometimes called errors and omissions (E&O) insurance, covers your professional work. If a client accuses you of making a mistake that costs them money, professional liability pays for your defense.
This coverage is for “professionals,” or individuals who make their living off of their specialized education and expertise, including:
- Medical professionals
- Business consultants
- Information technology professionals
- Financial advisors
Tradespeople, like contractors, carpenters, and painters, typically don’t need professional liability insurance. The same can be said for restaurateurs, retailers, and cleaners. However, insurers have designed professional liability products geared to other industries.
4. Cyber Liability Insurance for Startups
Cyber liability insurance covers your costs after a data breach. There are two types of cyber coverage: first-person and third-person. Startups need first-person cyber liability if they store customer data like credit card numbers, medical information, or email addresses. Third-person cyber protects businesses that are responsible for client networks.
Cyber insurance typically covers:
- Forensic services to discover the source of the breach
- Customer notification and credit monitoring
- PR and marketing services to restore your good name
- Ransomware costs
- Legal fees
- Court-ordered judgments and settlements
Startups that don’t store and don’t have access to client data probably don’t need cyber liability. For instance, if your business charges customers and never keeps the credit card number, then you may not need cyber insurance.
5. Commercial Auto Insurance for Startups
Commercial auto insurance covers business-owned vehicles. It’s typically purchased as a standalone policy. However, you may be able to add it as a rider to your liability insurance. An agent can help you decide if that’s a good option for your business.
As with personal auto, commercial auto comes with a variety of coverage options, such as:
- Liability: For other people’s property damage and injuries
- Medical payments: For injuries you and your passengers sustain
- Collision: For damage to your vehicle
- Uninsured & underinsured motorist: For when the other driver is responsible for damage but cannot pay
Most states require business owners to at least carry liability coverage for their business-owned cars and trucks. However, adding other coverage like collision and uninsured and underinsured motorists provides greater protection. You may also need commercial auto if you drive your own cars for work because most personal auto insurance excludes business driving. Startups without business vehicles do not need commercial auto insurance.
6. Workers’ Compensation Insurance
Workers’ compensation insurance is a state-mandated coverage that pays for employees’ work-related illnesses and injuries. The policy typically covers the injured employee’s lost wages and medical bills or pays death benefits to eligible survivors.
Every state has its requirements for workers’ compensation. Some mandate coverage the moment you hire a single employee. Others require it only as your startup grows. A few don’t require it at all. You can find out your state’s workers’ compensation laws online. Get the contact information for the correct government department from the United States Department of Labor.
7. Employment Practices Liability Insurance
Employment practice liability insurance (EPLI) covers your interactions with current and former employees and job candidates. It’s triggered by claims you failed to treat employees or potential hires fairly.
Events covered by EPLI include:
- Sexual harassment
- Wrongful termination
- Slander and libel
- Mismanagement of benefits
- Breach of employment contract
Startups only need EPLI if they are planning to hire staff.
8. Key Person Insurance
Key person insurance, sometimes referred to as key man insurance, is a life insurance policy startups may want to take out on an employee, founder, or owner who is essential to the business’s success. If the key person dies or is disabled and can no longer work, the insurer pays the business a benefit. This helps the business survive the loss.
Key person insurance is usually a term life insurance policy. This means you purchase the policy for a certain time frame, usually 10 to 30 years. The coverage only pays if the insured dies or suffers a disability while the policy is in force.
Business Insurance Costs for Startups
Business insurance costs for startups vary widely. One key differentiator is the industry. Different industries have different risk profiles. But other factors impact cost, too, including property ownership, number of employees, and industry experience.
Small Business Insurance Costs & Deductibles by Policy
|General Liability Insurance|
|Business Owner’s Property|
$5,000 - $10,000 property
|Professional Liability Insurance|
to $2 million/$2 million
*General liability doesn’t usually have a deductible. However, startups in hazardous industries may have a deductible for third-party property claims.
Professional liability insurance tends to be the most expensive coverage for startups that need it. The lower premium represents $500,000 occurrence and $1 million aggregate coverage. The more professional coverage you need, the higher your premium. Startups that need $5 million occurrence/$5 million in aggregate coverage can pay up to $8,000 a year. Requesting a higher deductible can reduce that.
Businesses where customers come to a physical location like restaurants and retailers usually have higher general liability costs. General liability doesn’t require a deductible, but you can opt for one to keep your overall premium down. Commercial property, on the other hand, always has a deductible but is usually the least expensive coverage for startups.
How to Get Inexpensive Startup Insurance
Business insurance is a smart investment for startups, but many entrepreneurs skip it because the costs seem to outweigh the benefits. However, you can keep your rates down by shopping around, bundling policies, raising your deductible, and managing your risk.
Here are some examples of how to get cheap startup insurance:
- Compare rates: Every insurer has its own system for determining premiums, so some can offer cheaper insurance for your specific risk; working with a broker is a good way to get multiple quotes in one sitting
- Bundle policies: Insurers want your business, so they usually give discounts for combining key coverage; ask your agent about a BOP as most BOPs bundle general liability and commercial property, but some add in additional coverage, depending on your industry
- Raise your deductible: Raising your deductible lowers your premium because it reduces your insurer’s share; before you do this, however, you want to think about how much cash you typically have on hand
- Lowering your limits: Choosing a lower limit reduces your overall costs; however, there are two caveats to this option, which are that lower limits mean less insurance, so you may not have the coverage you need when problems arise, and businesses that you work with may require certain limits in their contracts
- Manage your risk: Your claims history is one of the factors insurers consider when determining your premium; many insurers offer discounts for having burglar alarms, sprinkler systems, and other safety features
Jamie Imus, a financial representative with Country Financial offers up this rule of thumb for figuring out costs:
“Low-risk businesses with minimal property coverage could spend less than 1% of their revenues on insurance. Alternately, higher-risk businesses that cover significant property may spend 5% of their revenue on insurance. If you are going to insure a commercial structure that you own, that could be an additional percentage of the building¹s value.”
— Jamie Imus, Chartered Financial Consultant & Financial Representative, Country Financial
Remember, too, that cheap startup insurance isn’t a great deal if you end up underinsured. Evaluate the carrier’s rating and the policy terms before you select the most affordable option.
Tips on Getting Business Insurance for Startups
Buying business insurance for your startups is a process. To make sure you find coverage that is appropriate for your business, you need to understand the various policies and get them in place so that your business is protected. These tips can help.
Get Your Information Together
Insurers use your application to determine quotes, so the more accurate information you can give them, the more accurate your quote will be. That can save you from unpleasant surprises when it’s time to bind the policy.
You can get through applications faster and more accurately if you know:
- Annual revenue
- Projected revenue for the next 12 months
- Percentage of revenue from the largest client
- Annual payroll
- Number of employees
- Details about your physical location, including age and square footage
- Types of surrounding businesses
- Industry experience
- Claims history
Some of this is difficult for a new venture to get. Provide realistic estimates to avoid problems later on.
Some policies can be bound within hours of applying, particularly general liability, commercial property, and BOP. The turnaround for others, like workers’ compensation, can take a few days or even a week. Planning ahead gives you time to identify what policies you need, compare quotes from quality carriers, and get coverage in place.
Talk to an Agent
Insurance is complicated. A licensed agent can help you make sense of the available coverage options so that you can get insurance that fits your business. You might want to work with an agent who specializes in your industry too. These agents have a better idea of the risks you face and the carriers that offer quality coverage.
Business Insurance for Startups Frequently Asked Questions (FAQ)
If you have questions about the types of business insurance for startups, our forum is a great place to get them answered. Below are a few of the most frequently asked questions about business insurance for startups.
Is Business Insurance Mandatory for Startups?
Business insurance is usually optional for startups. One major exception is workers’ compensation insurance, which is required by law in most states. You might also find that many of your contracts include insurance requirements.
Do I Need Business Insurance for My LLC?
Setting up your startup as an LLC protects your personal assets, but you still need insurance to protect your business assets. As the owner of an LLC, you want to evaluate your risk and get policies that cover them. Some common policies include general liability, commercial property, and professional liability insurance.
Do Sole Proprietors Need Business Insurance?
While sole proprietors aren’t required to carry business insurance, many should consider it. Their personal and business assets are both at risk in a lawsuit, and business insurance can protect them. Like any business owner, sole proprietors need to look at their risk to determine which policies make sense.
The Bottom Line
Even successful startups can struggle to survive when trouble hits. The cost of lawsuits, data breaches, and customer injuries can bankrupt them if they have small business insurance. At the very least, startups need general liability insurance to cover the most common lawsuits business owners face.
Protecting your startup is easy when you work with The Hartford. Its small business specialist can tailor business insurance for your startup and send a quote in minutes. Get started by filling out a short application today.