The fast-paced nature of the startup world means that entrepreneurs often overlook the insurance products necessary to protect a growing company. Insurance should be viewed as, and maximized like, any other company asset. While getting insurance can be a nuisance and unwanted expense, the alternatives – having no insurance, or getting the wrong coverage – can cripple your company.
These are the primary business insurance coverage you’ll need to consider as a start-up. Some may not apply, or may be less essential, depending on your type of business and how it’s structured but to start, entrepreneurs should consider the following forms of insurance coverage as they grow:
Stage 1 – Research & Development
Stage 2 – Growth Phase
Stage 3 – Mature Company
Stage 1: Research & Development
The first stage is usually when the company is being conceptually formulated, partnerships are established, and funding is sought.
There are usually few employees in a small office. Insurance needs are somewhat minimal and typically driven by lease requirements or required by law.
- General Liability for office space (possibly an Umbrella depending on lease requirements)
- Property Coverage for Physical Assets
- Business Interruption coverage including loss of R&D materialsWorkers
- Compensation & Disability as required by law
Stage 2: Growth Phase
Typically this stage will be when outside funding is received, products are launched to market, employees are hired, and there is possibly some international expansion.
Insurance issues take on a bit more complexity. Client contracts often trigger the placement of these coverages.
- Errors & Omissions for intellectual property, privacy, and Internet services negligence which causes financial or other no-tangible loss to a third party
- Directors and Officers liability to protect the management team and Board of Directors from shareholder and employment related suits
- Crime coverage for employee theft, forgery, computer fraud, ERISA requirements
- Employee Benefits including medical, dental, life and disability coverage
- Key Man Life insurance for founders or other key employees (often a VC requirement)
Stage 3: Mature Company
At this point a solid risk management foundation should be in place, and monitoring the company’s growth and diversification becomes the biggest concern. Acquisitions can cause material changes to the company’s business risks.
As the company now has more cash, it also has the ability to sustain smaller losses without a devastating result. This allows for some new ways to set up the insurance which will help contain costs.
- Increased Deductibles and Self Funding considerations
- Merger and Acquisition policies to protect against acquired and assumed liabilities
- Participating Workers Compensation Policies (which can return a high percentage of the premium to you if you have no or few claims)
- Loss Mitigation policies. Most companies will have claims/suits at some point. With this type of policy, you work with the insurer to “buy out” your claim at the amount that you choose, and anything above that is the insurer’s responsibility