Startup business insurance is a range of policies that protect businesses from financial losses due to accidents, lawsuits, property damage, and other risks.
Startup Business Insurance: What You Need & Why It Matters
This article is part of a larger series on Business Financing.
Starting a business is an exciting journey, but protecting it with the right coverage is just as important as launching it. Many startups overlook business insurance, either due to cost concerns or a lack of awareness, but going without coverage can lead to significant financial and legal risks.
Understanding the essentials of business insurance costs for startups helps you make informed decisions, ensuring your startup complies with legal requirements while safeguarding your investment. This guide breaks down the types of insurance startups need, how much each type costs, and when insurance becomes essential.
Common types of business insurance for startups
While not all types of insurance are legally required, having the right coverage can prevent devastating financial setbacks. By understanding the basics of business insurance costs for startups, you can make informed decisions that protect your company from day one.
Coverage | What it is |
|---|---|
Covers third-party injuries, property damage, and legal fees if your business is sued; is essential for most startups | |
Professional liability (Errors and Omissions) | Protects businesses offering professional services against claims of negligence or mistakes; is required for certain industries like healthcare, law, and consulting |
Business Owner’s Policy (BOP) | Bundles general liability and commercial property insurance
It covers physical loss or damage to business property and is typically necessary for businesses that own or lease physical locations, stock inventory, and use equipment. It would not be required for businesses without physical assets.
into one package, often at a lower cost |
Covers medical expenses and lost wages for work-related injuries; is required if you have employees | |
Covers costs related to data breaches and cyberattacks; is critical for tech startups and online businesses | |
Covers vehicles used for business purposes in case of accidents, theft, or damage | |
How to choose the right type of startup business insurance
Selecting the right insurance for your startup depends on your industry, business model, and risk exposure. By following the process below, you can secure the right business insurance without overspending, ensuring your startup is protected from unexpected financial setbacks.
Step 1: Assess your risks.
Identify potential risks your business faces. Ask yourself:
- Do I interact with customers in person? (General liability insurance)
- Do I provide professional advice or services? (Professional liability insurance)
- Do I have employees? (Workers’ compensation insurance)
- Do I handle sensitive customer data? (Cyber liability insurance)
- Do I sell physical products? (Product liability insurance)
Step 2: Determine legal requirements.
- Check state laws and industry regulations for mandatory insurance coverage.
- Review contract requirements; some clients, landlords, or lenders may require specific policies.
Step 3: Compare providers and policies.
- Get quotes from multiple insurers (e.g., Next Insurance and Simply Business) to compare coverage and pricing.
- Look for bundled policies (such as a BOP) for cost savings.
- Consider financial strength ratings and customer reviews of insurance providers.
Step 4: Balance coverage and cost.
- Choose policies that cover essential risks without overpaying for unnecessary add-ons.
- Adjust coverage limits and deductibles to fit your budget while maintaining adequate protection.
Entrepreneurs often find themselves weighing the intricate balance between adequate protection and budget constraints when exploring small business insurance coverage and costs. The right policy can shield your emerging venture from potential financial risks.
How much does startup business insurance cost?
The cost of startup business insurance varies depending on factors such as industry, business size, and location.
The cost of workers’ compensation insurance is calculated using a formula that includes your business’s industry, claims history, and number of employees. As such, prices can vary significantly — even within the same industry.
Factors that affect business insurance cost for startups
While cutting costs by skipping insurance may be tempting, doing so could expose your startup to significant financial risks. Choose the right policies to balance affordability with sufficient coverage to protect against unexpected losses.
Why startups need business insurance
Starting a business comes with risks, and without the right insurance, a single incident could lead to costly legal battles or financial ruin. Many startups operate without insurance, assuming they can manage risks on their own, but unexpected events — such as property damage, customer injuries, or cyberattacks — can be devastating.
In some cases, insurance is legally required.
- Professional liability insurance: State laws or licensing boards require certain professions, such as medical providers and legal professionals, to carry professional liability insurance.
- Workers’ compensation insurance: If your startup has employees, nearly all states require this coverage to cover workplace injuries; exact requirements vary by state. To see the laws for your state, you can visit the NCCI’s workers’ compensation insurance plan, which allows you to print out a PDF file based on each state.
- Commercial auto insurance: If your business owns vehicles, note that most states mandate this type to cover accidents involving company-owned cars.
Even when not mandated, coverage provides peace of mind and credibility, showing clients and partners that your startup is prepared for unexpected challenges. It may also be required by landlords, vendors, or clients before signing contracts. By securing the right policies, you can focus on business growth rather than worrying about unexpected liabilities.
Is startup business insurance essential?
Business insurance becomes essential the moment your startup faces financial, legal, or operational risks that could lead to significant losses.
- If you have employees, sign client contracts, lease office space, or interact with customers, you likely need coverage to meet legal requirements and protect against liability claims.
- If your business owns valuable equipment, handles sensitive data, or operates in a high-risk industry, insurance is crucial for safeguarding assets and ensuring long-term stability.
How to get business insurance
Once you’ve determined the type of insurance your startup needs, the next step is securing coverage. Here’s a step-by-step guide to help you navigate the process efficiently.
Step 1: Gather business information.
Insurance providers will ask for details about your business, including the following:
- Business type and industry
- Number of employees
- Annual revenue and projected growth
- Physical locations and assets
Step 2: Compare quotes from multiple providers.
- Use online tools from providers like Next Insurance and Simply Business to get instant quotes.
- Consider bundled policies (like a BOP) to save money.
- Look for insurers with strong financial ratings and positive customer reviews.
Step 3: Review coverage terms and exclusions.
- Check what is and isn’t covered under each policy.
- Pay attention to coverage limits, deductibles, and exclusions.
- Ensure the policy meets any legal or contract requirements.
Step 4: Purchase and implement your policy.
- Finalize the policy that best fits your needs and budget.
- Set up automatic payments to avoid lapses in coverage.
- Store policy documents securely and inform key team members about coverage details.
Step 5. Regularly review and update coverage.
- As your business grows, reassess insurance needs annually.
- Update coverage when hiring employees, adding services, or purchasing new equipment.
- Work with an insurance agent if you need help adjusting policies.
The best startup business insurance companies
When selecting an insurer to partner with for your business insurance needs, you may prefer to work with an independent provider or an insurance marketplace that’s a one-stop shop. Here are my top two recommendations:
- Next Insurance: Best for easy-to-manage, affordable coverage from a direct insurer that offers a variety of business insurance policies.
- Simply Business: Best for comparing multiple providers side-by-side by shopping at a marketplace where you submit just one application and receive multiple quotes.
 |  | |
|---|---|---|
Types of coverage | General liability, BOP, workers’ compensation, professional liability, cyber, etc. | Varies by provider |
Customizable policies | Yes | Varies by provider |
Online quotes | Instant | Instant |
Financial strength | Rated A- (Excellent) by AM Best | Varies by provider |
Claims process | Fully online filing | Varies by provider |
Availability | Nationwide | Nationwide |
When navigating the complex landscape of protecting your startup, it’s important that you understand the offerings of the small business insurance carriers. This can be crucial to finding the right coverage that safeguards your entrepreneurial investment.
Next Insurance: Best for easy-to-manage, affordable coverage
| |
|---|---|
Next Insurance is a good fit for startups, especially those looking for affordable coverage and wanting to purchase coverage directly from the provider. It has an easy-to-navigate online process and provides high liability and property limits. It also offers up to 10% savings when you bundle multiple coverages. Despite being less than a decade old, Next Insurance's AM Best rating is A- (Excellent). | |
Next Insurance offers a streamlined online quote process through its website or mobile app. Using AI-driven technology, it provides customized insurance quotes in minutes after you answer a series of business-specific questions about your industry.
The policies can be written for all types of insurance you may need: general and professional liability, commercial property, and workers’ compensation. It primarily serves small and midsize businesses; however, it can accommodate slightly larger businesses on a case-by-case basis.
Next Insurance offers an app exclusively for commercial services, and it functions like a 24/7 call center. This allows you to manage your policy, file a claim, or get an instant certificate of liability insurance (COI).
If you prefer to speak with someone in person, the customer support center is open Monday to Friday, from 8 a.m. to 5 p.m CT.
Next Insurance boasts a strong customer satisfaction rating on Trustpilot, earning an impressive 4.7 out of 5 from over 1,100 reviews.
Simply Insurance: Best for comparing providers with just one application
| |
|---|---|
Digital insurance brokerage Simply Business specializes in providing online insurance options from over 100 of the best carriers without the need to speak to anyone. The broker’s emphasis is on smaller businesses. After entering key information about your business, Simply Business will provide multiple quotes with information on the coverage and provider, giving you the freedom to pick the right one. Online, you can purchase coverage and then manage your policy. Simply Business works with top-rated providers. It’s owned by Travelers, and AM Best rated Travelers an A++ (Superior). | |
Simply Business provides an online comparison platform where you can enter your business details once and receive multiple quotes from various top-rated insurance carriers, allowing for easy side-by-side comparison of coverage options and pricing.
This broker lets you tailor the coverage so that after the quotes are generated, you can interact with the coverage and change the limits. Then, it will update the quotes in real time. You can purchase the policy online or call to discuss the coverage.
After purchasing a policy, you can manage it and initiate the claims process through your online account, which you have access to 24/7. You can also request a COI. If you prefer speaking with someone directly, Simply Business is open Monday through Friday, from 8 a.m. to 8 p.m. ET.
Customers are happy with their experience using Simply Business. The brokerage has more than 1,370 reviews on the independent review site Trustpilot, with a rating of 4.6 out of 5 stars.
Frequently asked questions (FAQs)
The best insurance depends on your industry, but most startups benefit from general liability insurance and a BOP for broad protection. If you provide professional services, consider professional liability insurance as well.
A $1,000,000 general liability policy typically costs $40 to $80 per month, but rates vary based on industry, location, and business size.
It depends on your location and industry. Some businesses must carry insurance (e.g., workers’ compensation if you have employees), and even when not required, insurance is highly recommended to protect against lawsuits and financial risks.
No, an LLC does not legally require insurance to be formed, but having coverage protects against liability beyond the LLC’s legal protections. Many landlords, clients, and lenders may require insurance before doing business with you.
