How Much Can Growing Startups Expect To Pay for Insurance
Startup founders have a lot on their plate. Legal matters, finances, and running day-to-day operations are just a few things that demand their attention. With such a hectic schedule, business insurance is often seen as an expensive and time-draining luxury. However, nothing could be further from the truth.
As your company grows, so do the risks associated with it. You hire more people, get new customers, expand to a few more offices or stores. Even if you are a firm believer that nothing could go wrong, accidents happen all the time.
The consequences of a costly lawsuit, natural peril, or an innocent mistake could be devastating for a growing business. With so many potential issues and hiccups, protecting your company with insurance is a crucial part of securing your business’s stability and growth.
We created this guide to help you gain a deeper understanding of what insurance policies you need and how much you can expect to pay to be properly covered.
Common Types of Policies Startups Need
General Liability Insurance protects your business from third-party claims of bodily injury or property damage claims. Imagine that a customer injures themselves while visiting your office. Now imagine what happens if they decided to sue – it could end up being a very costly lawsuit that you simply couldn’t afford. That’s where your insurance policy would kick in and cover all your legal costs or the potential settlement.
If you have employees, Workers Compensation Insurance is required by law in almost every state, with the notable exception of Texas. This policy will cover the medical costs of a work-related illness or injury, including the rehabilitation costs, as well as lost wages during the recovery time. In case the employee decides to sue your company, it will also cover your legal fees.
Employment Practices Liability Insurance is another crucial coverage for startups with employees. It protects you from potential employment-related claims- such as allegations of discrimination, wrongful termination, or harassment claims. EPLI is becoming increasingly important because employment-related claims have been on the rise in the past few years.
Cyber Insurance has become a necessity for every company relying on technology. It’s quite simple – if you store any confidential customer data online, such as credit card information or social security numbers, it is your responsibility to keep that data safe. There are many types of cyberattacks, and criminals often target small businesses because of the presumed weaker security strategy. A cyberattack could cost a small business up to $1.24 million, indicating that a cyber insurance policy is essential to mitigate such enormous financial risk.
Finally, if you plan to go fundraising or have already raised capital for your startup, the investors will require that you have a Directors and Officers policy in place. It indemnifies your executive team against any claims of misrepresentation, neglect, or financial misconduct.
How Much Will a Startup Have to Pay for Insurance?
First of all, every startup owner and CEO must understand that the cost of any mistake, lawsuit, or cyberattack exceeds the price of the proper insurance coverage by far. The consequences of such events could cripple even established companies, let alone a startup. If you have been delaying giving insurance adequate attention and funds, it’s high time you reconsidered that decision. Let’s break down how much a risk management plan will cost. Even though every company is unique, the amount you would need to pay to get your business well covered depends on a few key factors:
- The number of employees. How many (if any) employees do you have? The more people you have working at your company, the greater is the risk of having someone sue over a harassment or discrimination case.
- The industry you are in. Some industries carry more risk than others. For example, if you are in the business of construction, your workers’ compensation premium will be much higher than that of an office-based business. Every industry carries a specific risk, and it is crucial that you identify yours and purchase the necessary insurance policies.
- The additional policies you need. Let’s say that you own a retail store. You should consider obtaining Product Liability Insurance and a Commercial Property policy to protect your company assets. On the other hand, if you are an accountant, lawyer, medical specialist, or any other service provider, Professional Liability coverage protects you from the claims of malpractice and unintentional errors.
- Your claims history. Insurers will investigate the claims and lawsuits you had in the past and determine your risk category based on them. Businesses with prior claims are naturally considered to carry more risk.
As we mentioned before, the amount each company would need to pay for insurance depends on its unique situation, but a study shows that startups spend an average of $1,281 per year for all their policies. Insurance not only helps you protect your company, but it will also help you grow – clients, investors, and partners prefer to do business with companies that bring less risk into the deal. Think about adding some benefits for your employees as well to help you attract and retain top talent and be competitive in the job market.
This article has been published in accordance with Socialnomics’ disclosure policy.
