Entrepreneurship has never been more popular than it is right now. Roughly 627,000 new businesses open each year, making startups a relevant topic for nearly every industry. Startups help drive our economy and spur on innovation globally. Hard-working individuals give their blood, sweat, and tears to bring their ideas to life.
Strangely enough, 595,000 businesses close each year — and more in tough times. For example, more than 200,000 extras closures occurred in 2020 due to the global pandemic. Some of these companies were startups, while others were long-time organizations. On a good note, the pandemic also gave courage to individuals who’d always considered entrepreneurship a pipe dream. More startups are thriving now than ever before — and we hope to keep it that way.
Why is Insurance for Tech Companies Important?
Insurance works to protect your company, employees and professional growth. However, it can be difficult to know what insurance your startup needs. Some policies are required by law while others are required by investors. There might be policies that you’ve never even heard of!
Insurance is an investment, not merely a cost. A well-placed policy frees up your time, energy, and money to focus on growing your business. But the lives of founders and startups can be chaotic — sometimes insurance becomes more of a “check-the-box” activity.
When used properly, insurance policies provide value to companies that goes well beyond what a “set it and forget it” approach provides. If you’re investing in the stock market, do you buy a couple shares and then just ignore them? No, chances are you monitor your investments, tailor them as your needs. Besides, goals change, so it only makes sense to work with an advisor who can help you along the way.
Aside from meeting certain legal and compliance requirements, here are a couple important benefits startups enjoy when they have the right insurance coverage:
- Attract Investors – investors do everything in their power to eliminate risk from the equation. One of the ways they do this is by requiring companies to get certain types of insurance coverage.
- Keep Customers Happy – many of your customers will demand it proof of insurance, particularly if you’re in the B2B space.
- Hire Top Talent – as you grow, so does your risk exposure.
- Scale – as you grow so does your risk exposure. Having right coverage in place will give you peace of mind and time to focus on scaling your business.
- Disrupt– when you’re taking on entire industries and shaking up the status quo, something’s bound to go wrong. Someone’s probably going to sue you at some point. Whether the danger is coming from competitors or regulators, you’ll have a black hole of time-wasting paperwork and legal fees on your plate if you don’t have the right insurance in place.
Entrepreneurs are often heavily invested in their product, and roll them out to the open market with pride. However, why do some products flop while others make their mark on the world? Consider the risk your product faces as you release it to the public.
Consider how your product fits into the market. Is there enough market appetite, or does it take massive persuasion to move your product? Are you missing any blind spots? The market has a unique ebb and flow, trending parallel with social fads and movements. Startups must know their market like the back of their hand.
Most entrepreneurs are more than willing to give their blood, sweat, and tears to their endeavor — but what about money? If you hit a roadblock with the new business, how will you financially recover? What’s your plan if someone sues you? How will you secure funding for growth?Examine your financial risk from multiple angles to ensure adequate protection.
Startups often begin with one or two people jotting down ideas onto a crumpled up napkin in a retro burger joint. And one person can successfully launch and maintain a business for a while. When the time comes to grow, though, how will you handle hiring employees, keeping them happy and safe?
Recommended policies for Startups
These coverages form the foundation of any risk management program for Startups:
General liability offers broad protection against some of the most fundamental risks companies face. Known as “slip-and-fall” or “all-risk” insurance, this policy covers personal or property damage and bodily injury occurring on the business premises.
When employees sustain work-related injuries, employers are typically responsible for their medical costs and lost wages. This policy covers these expenses, protecting employees while simultaneously keeping companies running smoothly.
Cyber insurance protects companies from third-party lawsuits relating to electric activities (i.e., phishing scams). Plus, it offers many recovery benefits, supporting data restoration and reimbursement for income lost and payroll spent.
Employment Practices Liability
Any company with employees faces the risks of allegations, such as discrimination, wrongful termination, breach of contract, etc. This coverage protects companies against lawsuits related to employment practice.
Startups Specific Coverage
These policies are essential for or can be tailored to the needs of companies operating in the Startups:
Directors & Officers
Shareholders, competitors, investors, etc., can sue a company’s directors and officers, putting their personal assets at stake. Directors and officers (D&O) insurance protects these assets from lawsuits alleging leaders of wrongful acts managing the business.
Errors & Omissions
Professional liability, also known as errors and omission (E&O) insurance, covers companies in third-party or client lawsuits claiming substandard work or service. Work errors or oversights, missed deadlines, budget overruns, etc., often result in costly cases — but E&O insurance responds to these mishaps.
Types of Startup Companies that need insurance
- Media and Advertising
- Healthcare & Biotech
- On- Demand
- Professional Services
- Real Estate
- Venture Capital
Startups Frequently Asked Questions
The cost of insurance for startup companies will depend on several things, including the company’s size and development stage. Other factors include:
- Exposures: risks being insured
- Company practices: views on safety, compliance, and risk management
- Program structure: the amount of deductible and willingness for a company to assume more risk
- Claims history: the type and amount of past claims against the company