Should You Get Business Insurance for Your Startup?

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Startup business insurance isn’t necessarily required as every state will have different parameters surrounding what insurance coverage is mandated for companies. The only exception is workers’ compensation insurance, which is required for any startup (or any business) that employs their state’s minimum number of employees. Coverage and costs will vary based on the type of startup, its size and industry, among other factors.

Read below to see what insurance types are available for your startup along with pricing and where you can obtain coverage.

What Is Startup Business Insurance?

Startup business insurance provides financial protection for newly formed businesses, usually covering liability claims related to your business, workers, products or services. However, “startup business insurance” isn’t an actual product sold among commercial insurance carriers. Instead, startups can choose from a variety of coverages, such as liability, commercial property and business interruption, that will best suit their business needs. Therefore, policies vary in cost and scope depending on the type of startup.

Why Is It Important for Your Startup To Have Insurance?

Commercial insurance protects your company in the event your company suffers liability or physical property losses. This can include claims related to customer injuries or you need financial recompense if something happens to business inventory or key equipment.

Buying the right coverage for your startup is an investment in your company's future. Newly formed business can easily go belly-up if they do not have the financial resources to handle costly losses.

Properly insuring your business and assets can also help with investor relations, attracting talent and generating solid customer relations.

  • Investor relations: Having the proper insurance coverage may boost a company's chances of finding the right funding partners, which typically helps investors throughout the diligence phase.
  • Attracting talent: New talent will be looking for good pay, as well as benefits. Having health insurance as well as workers’ compensation can help your startup attract the best employee candidates and create long-term retention.
  • Generating solid customer relations: B2B (business-to-business) customers will often stipulate insurance requirements along with proof of insurance before any contracts are signed.

What Is Covered by Startup Insurance and How Much Does It Cost?

Startup insurance can include a wide swath of solutions, with costs starting as low as $25 per month and going up to $2,500 and up depending on the coverage. The table below shows the various coverages startups can consider both now and in the future plus average monthly rates provided by Next Insurance, The Hartford, AdvisorSmith, Embroker and Fit Small Business.

Coverage

Description

Average Monthly Rate

Business Owners Policy (BOP)

Bundled policy that includes general liability coverage, commercial property coverage and business interruption insurance.

$261

General Liability Insurance

Protects the business from bodily injury or property damage caused by you or an employee.

$25 - $100

Professional Liability Insurance (Errors and Omissions)

Company will be covered for claims of negligence, misrepresentation, inaccurate advice and personal injuries, such as libel or slander. 

$25 - $100

Workers’ Compensation

Provides benefits to employees that can help them recover from a work-related illness or injury.

$70

Commercial Auto Insurance

Provides protection if an employee is at fault for hurting someone or for damaging another’s property while driving a company car. Employees will be protected if they are injured while driving a company vehicle.

$75 - $200

Inland Marine Insurance

Equipment or tools owned by your business will be protected while in transit between job sites.

$62

Commercial Property Insurance

Office space will be covered if it is damaged or destroyed by a covered event. Protection also includes personal property at the office space, inventory, furniture, outdoor landscaping and accounts receivable.

$18 - $250

Directors & Officers Insurance

Protects the personal assets of company directors and officers if they are sued while serving as a director or officer.

$416 - $833

Employment Practices Liability Insurance

Covers your legal defense costs as well as settlements or judgments if you’re sued for wrongful termination, employment-related harassment or discrimination by a current or former employee.

$800 - $5,000

Cyber Liability Insurance

Provides protection in the event of a data breach or software outage, covering credit card information, Social Security numbers and any other personal online information.

$132

Fiduciary Liability Insurance

Protects your company and employees if someone responsible for benefits such as health insurance, 401(k)s and stock options makes a mistake.

$500 - $2,500

Key Person Insurance

A life insurance policy that pays a business upon the death of an individual considered critical to the company, instead of that person's beneficiaries.

$16 - $126

Commercial Crime Insurance

Reimburses your company if securities, money or any other tangible property is lost because of criminal acts.

$113 - $187

Commercial Umbrella Insurance

Increases the limits of your existing liability coverage so you can cover expensive claims.

$150 - $300

Note: Pricing will vary by insurance company, business and location. The numbers above should only be used for comparative purposes.

Find Commercial Insurance for Your Startup

Companies Offering Startup Business Insurance

Startups have several options when looking for insurance, including some of the more well-known carriers in the country along with companies that specialize in business insurance. See below which providers have commercial insurance along with the types of coverage they offer.

Company

Description

Types of Insurance

Farmers

Offers commercial insurance that can be broken down either by coverage type or by industry, making getting protection quick and easy.

  • Property
  • Liability
  • Crime
  • Auto
  • Workers' Compensation
  • Umbrella
  • Life

The Hartford

Offers expertise from over 200 years of experience along with being rated as one of the world’s most ethical companies.

  • Property
  • Liability
  • Data Breach
  • Auto
  • Workers' Compensation
  • Umbrella

Mercury

Offers coverage for several business subsets, including habitational insurance, lesser risk insurance and small business insurance

  • Property
  • Liability
  • Data Breach
  • Auto
  • Workers' Compensation
  • Umbrella
  • Life
  • Medical Expenses

Nationwide

Offers commercial insurance that is broken down between small and large business entities. The size of the business can then be broken down by industry, making getting protection quick and easy.

  • Property
  • Liability
  • Crime
  • Data Breach
  • Auto
  • Workers' Compensation
  • Umbrella
  • Equipment
  • Inland Marine
  • Accounts Receivable
  • Builder’s Risk

Travelers

Offers commercial insurance that can be broken down either by coverage type or by industry, making getting protection quick and easy.

  • Property
  • Liability
  • Crime
  • Auto
  • Workers' Compensation
  • Umbrella

Allstate

Offers commercial insurance broken down into two categories; business owners policy (BOP) and commercial auto.

  • Property
  • Liability
  • Crime
  • Auto
  • Transportation

Hiscox

Offers expertise from over 100 years of experience along with having a Feefo rating of 4.8/5.

  • Property
  • Liability
  • Crime
  • Auto
  • Workers' Compensation
  • Umbrella
  • Medical Malpractice

State Farm

Offers expertise from over 100 years of experience with insurance as well as banking solutions.

  • Property
  • Liability
  • Crime
  • Auto
  • Workers' Compensation
  • Umbrella
  • Life
  • Inland Marine
  • Surety and Fidelity Bonds
  • Key Employee

CNA

Offers commercial insurance by industry or type of coverage. Specializes in insurance products for small and mid-size businesses as well as international solutions.

  • Property
  • Liability
  • Crime
  • Data Breach
  • Auto
  • Workers' Compensation
  • Umbrella
  • Equipment
  • Inland Marine
  • Accounts Receivable
  • Casualty
  • Equipment Breakdown
  • Surety
  • Umbrella & Excess Casualty
  • Warranty & Alternative Risks
  • Workers’ Compensation

Embroker

Offers commercial insurance for startups, tech companies and law firms. Has recently added solutions tailored to aviation and aerospace and cannabis companies.

  • Property
  • Liability
  • Crime
  • Data Breach
  • Auto
  • Workers' Compensation
  • Umbrella
  • Equipment
  • Casualty
  • Equipment Breakdown
  • Surety
  • Umbrella & Excess Casualty
  • Workers’ Compensation

FAQs

Is business insurance a startup cost?

Business insurance is usually considered a startup cost since it is a standard operating expense when opening a new business. Factors such as how many employees you have, your company’s industry and the risks your company faces will dictate how much you pay for coverage.

Do you need insurance for a self-employed business?

Not all self-employed businesses will require insurance but workers’ compensation insurance is required if you employ the minimum number of workers specified by your state. Certain types of sole proprietorships, like smaller freelancing businesses, may commonly operate without business insurance.

What type of insurance is required to operate a startup business?

While general liability insurance is among the most common types of purchased coverage, there is generally no state law that requires it. However, certain types of insurance may be required as part of the licensing process for certain professions and workers’ compensation insurance is necessary if you employ a certain number of employees.

Which insurance company is best for small businesses?

The best insurance company for your business will depend on the type of business you have, the coverages that are available and what carriers are available to provide you with protection. General liability insurance is a commonly purchased product but certain service-based businesses, like legal and accounting, should also consider errors and omissions insurance.

Does my startup need general liability insurance?

General liability may not be legally required for your businesses, but it’s often worth having it. Without coverage, you would pay out of pocket for claims-related expenses when your business lands in legal hot water.

Key Takeaways

  • There is generally no state law that requires startups to have business insurance.
  • Business insurance may be required as part of the licensing process for certain professions.
  • Startups will need to buy workers’ compensation insurance if they employ the minimum number of employees specified by their state.
  • The cost for startup business insurance will vary by insurance company, business type and location.
  • Most well-known insurance companies offer commercial insurance for startups.

SmartFinancial can help you with all your startup business insurance needs. Enter your zip code below or call 855.214.2291 and we’ll send you your free commercial insurance quotes.

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