Launching a new business is exciting! When you are starting your business, it’s easy to lose sight of the many potential risks your company may face. This is among the common mistakes of startup companies. A single accident or lawsuit can wipe out your company before it even has the chance to get off the ground.

While setting up a business entity like a limited liability company (LLC) or corporation can protect your personal assets from liabilities incurred by your business, it won’t protect your business assets. That’s where business insurance for startups comes in.

Why You Want Insurance for your Startup

You can’t protect your business 100% from every single threat, but you can greatly improve your chances of surviving by having the proper insurance coverage in place. That said, there are many types of business insurance out there, and some policies can be very expensive, so it’s critical to know the specific risks your company faces and what types of insurance will best cover those risks.

Outside of mandatory coverage, such as worker’s compensation, there are several types of insurance that practically every new business owner should invest in. Depending on whether you have employees, use office space, provide services, or manufacture products, you’ll likely need some or all of the following policies.

General Liability Business Insurance

All businesses need general liability insurance, which covers lawsuits initiated by third parties (non-employees) for bodily injuries or property damage that are directly or indirectly related to your business. It’s important to note that such coverage—and indeed most coverage listed here—is needed even if you aren’t at fault. Keep in mind anyone can sue you for anything, and the lawyer’s fees can cripple your business, even if you win the case. The right insurance will cover your legal fees.

Commercial Property Insurance

Whether you own or lease your office space, property insurance is a must. Such policies cover damage to equipment, furniture, and signage from events like fires, storms, and theft. Some natural disasters, like floods and earthquakes, may not be covered, so be sure to check with your agent to add additional coverage if you live in a disaster-prone region.

Professional Liability or Malpractice Insurance

Also known as errors and omission (E&O) insurance, this covers lawsuits alleging your professional services caused a client to suffer damages, arising from actions like negligence, mistakes, and violation of contract. Such coverage can be essential for a wide range of businesses—accountants, lawyers, real-estate agents, consultants, IT firms, and others. Consult your business attorney on whether you’ll need E&O insurance.

Cyber Insurance

From websites and social media to e-newsletters and mobile apps, virtually every business has a digital presence of some type. Cyber insurance protects against damages from threats to your computer systems and databases, such as data breaches, hacking, and network failures. If your data is lost, stolen, or compromised, the cost to recover and restore this information can be exorbitant. This coverage also protects you from lawsuits by customers, vendors, and others whose data is stolen from your system. It can also cover the cost of notifying affected parties of a breach, (which is typically required by law), paying regulatory fines, and the expense of lawyer fees, judgments, and settlement costs resulting from a lawsuit. 

Vehicle Insurance

If your employees use a company-owned vehicle to conduct business, those vehicles should have comprehensive commercial auto insurance to protect against liability as well as any injury/damage to your employees, vehicles, products, and equipment. If your employees use their own vehicles, personal automobile insurance often covers them. However, it’s a good idea to purchase “non-owned auto liability coverage” in case an employee fails to renew their insurance or has inadequate coverage.

Employment Practices Insurance

This type of policy provides protection for lawsuits initiated by your employees. While this is an often-overlooked coverage, it’s actually one of the most important, since employment claims are the most serious threat to your business, even if you think you are the best boss on the block. Nearly one in every five small businesses will get sued by a team member at some point in their lifecycle according to a study by Hiscox.

Umbrella Insurance

Umbrella insurance offers an extra layer of coverage which would pay for any claims that exceed the payout limit of your other policies. It’s important to know that umbrella insurance is not offered as stand-alone coverage, and you must first have an appropriate underlying policy in place to qualify for it. In fact, you may not qualify for umbrella insurance if your underlying policy doesn’t offer high-enough payout limits.

Getting Business Insurance For Your Startup

Every business has its own unique risks and assets, so there’s no way to know exactly what coverage your company needs without an evaluation. Just as you create a succession plan for your business, you want a plan for your business insurance. Before you sit down with an insurance agent, meet with your business law attorney to establish what coverage you may actually need to protect yourself and your business properly.