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As a startup operates in its early stage, it is always exposed to certain risks no matter which industry your business is in. The risk starts even from the time you hire your first employee, and your business may face liability if it does not carry the right coverage of startup insurance products. Startups have special types of insurance needs to protect them against claims if catastrophic events may get them to be out of business early.
What Insurance Does a Startup Need
Although a startup may function differently from other mature companies, it does not mean that its insurance coverage will be less comprehensive. If your business is facing potential losses due to claims and may not be able to handle the cost to defend itself, your insurance coverage could fold before it hits the ground. Such scenarios will be covered by business insurance for startups, protecting your business, and giving your business a chance to succeed.
The first stage wherein startups in this category are self-funded or F&F. It has no or has only a few employees. If your company is in this stage, you will need these business insurance policies:
General Liability Insurance. General liability insurance protects your business against claims due to injury, property damage, losses from accidents inside your property, or dangers caused by your product or services.
Property Insurance. It provides coverage for your physical assets in the event of loss or property damage. This type of insurance will compensate your expenses for replacing or repairing your owned items, and cover lost income resulting from service interruption.
Cyber Liability Insurance. This insurance covers your financial losses due to data breaches and other cyber incidents. This policy covers you from damages that directly affected your company due to harm caused by an outside source or a source of business’ negligence (third party).
It is the next stage wherein companies have achieved certain milestones if you have raised more than $1 million, you have launched your product, and are actively hiring. Having these achievements, you should need these policies:
Workers Compensation Insurance. Workers compensation coverage is required by law in some states as it covers medical bills due to bodily injury and lost employee wages who have been ill or injured on the job. Although your business may have done its best to follow safety guidelines, accidents can happen, and you would want to be covered if this event happens.
Directors and Officers Insurance. This insurance covers your founders, administrators, and members of the board of directors from claims of management misconduct, wrongful acts, unfair competition, theft, fraud, and more.
Key Man Insurance. The company purchases this life insurance policy on a key executive’s life, and the company is the beneficiary.
It is the last stage where a startup has moved along several rounds of funding, has an HR department, and increases your business revenues and clients. At this point, you should need:
Employment Practices Liability Insurance. This liability coverage covers claims filed by employees after their legal rights have been violated. These rights may include sexual harassment, wrongful termination, and discrimination.
Professional liability insurance. Professional liability policy is also known as errors and omissions (E&O) insurance, which is required for protecting a business from negligence claims due to errors or failure to perform. This policy can be customized to fit your niche, so work with your insurance agent to understand what you are and are not covered from.
As a startup that owns a workspace or leases the property, property insurance is a vital need. Property insurance can cover the following
- Company Owned Equipment
- Property Damage
Carrying property insurance will provide protection to any areas of your property that are damaged due to fire, theft, or natural disasters. In case your property insurance does not cover mass destruction perils, like flooding and earthquakes, and your area is at a high risk of these types of disasters, then you may ask your insurance company or insurance agency about how your property or business can be protected.
A lot of successful companies start operating as startup companies out of their homes. However, homeowner insurance policies don’t cover a home-based business as what commercial insurance policies protect.
To remedy this problem is to obtain additional policies. Since an insurance policy cannot be a one size fits all plan, you should talk with your insurance agent about what additional policy to purchase to fit your needs.
Product liability insurance
If your company manufactures and sells products for the general public, you have to obtain product liability coverage. Even though your business is following guidelines and precautions, your products are user-friendly and safe, you might still get yourself faced with a lawsuit for damages caused by your products.
This general liability insurance will work to make sure that your business is protected from lawsuits. With each product liability policy, you can customize the amount of money you are insured for each case of a lawsuit.
If you or your employee uses a vehicle for any company operations, you should obtain vehicle insurance. Vehicle insurance is required by law, which can help protect your company against liability if an accident happens and you or your employee is found to be at fault. Some basic vehicle insurance policies will only cover third party injuries, so you may need to get more advanced plans to provide you protection from injury claims and liability for damages.
Business interruption insurance
If a disaster or catastrophic event happens unexpectedly, your business operations might be put on hold. This insurance coverage will protect your business from losing income during such mishaps and prevent your company from working in your office or manufacturing products to make sales. Business interruption insurance will protect you from possible lawsuits that resulted from the inability to complete work that may save your business from huge financial loss.
Business Insurance Cost For Startups
Business insurance is vital for any business to operate safely and have an excellent chance to succeed. Carrying the right coverage of general liability policy will protect your employees and encourage investment or business partnerships. There are a lot of factors and types of coverage that you have to consider in purchasing insurance. This information on startup business insurance costs will guide and help you make the best decision.
The cost of business insurance for startups varies depending on the industry, details of your business, and coverage. Basic coverage for small businesses may start at $600 per year and may increase up to $5,000 for larger companies that obtain the full range of policies.
How Long is a Startup Considered a Startup?
There are a lot of factors that can associate with the definition of a startup. To clearly establish these defining factors, the following are the resulting criteria.
If a startup business reaches a particular threshold of employees/market/revenues presence that can be considered measurable, significant, and noticeable, the industry is no longer a startup. It may vary depending on the industry; for example, it could pass the stage with just half a dozen employees and a million dollars profit for a public relations firm. But for an auto manufacturer, it may have to achieve a revenue of billions of dollars and thousands of employees before it can be considered a non-startup in its particular area.
Once a company does not rely on investors to fund its growth and have consistent profits to fuel company expansion, it is no longer a startup.
Startups start with the hypothesis that their product and services can attract an audience or group of customers. They try to collect elements together to prove their hypothesis. When the hypothesis is proven, the business idea has been validated, and the business has its product-market fit, making them no longer considered a startup.
Startups have informal channels for communication, but one strong sign that a business is no longer a startup is that its function becomes complicated and requires formal communication channels. As a company matures out of this mode, the regular texts and emails are insufficient.
A traditional non-scalable business, like a standard convenience store, cannot be considered as a startup. Startups must be innovative and should have a business model that has the capability to scale globally. When a company reaches a point where it is not anymore innovating, it is no longer a startup.
Looking through these factors, one could determine whether a company can be considered a startup or not. If a company meets all or most of the criteria, then it belongs to this mode.
What Classifies a Company as a Startup?
A startup’s definition is broad as it covers some philosophical distinctions, technicals, and even some hard and fast numbers. It is a company that does business with something new or novel. It does not have to be tech; it is a small business that follows a particular prescribed model.
A startup is a company that is in the early stages of its development. It is a company that is mostly founded by one or more businessmen who want to develop new products or services where there is demand.
During the early days of launching, a startup is usually funded by members of the founding team. But some others, about 66% of them are funded by an investor or take out loans. The funding sources for new businesses are usually family, friends, venture capitalists, loans, and crowdfunding. This type of company should also consider where they will do business and its legal structure.
Many startups fail within the first few years of operation. Hence, the initial period is vital. Make sure to get the right insurance for startups to protect your business. Having the right insurance in place will enable you to avoid potential financial loss during your company’s critical starting stages. Remember that every insurance agency has its own policies. You may double-check with your representative to ensure your business’s safety and protection.
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