Many new business owners are unsure what decisions to make regarding startup business insurance. They may have limited funds or think that insurance can wait until the business is more established with clients and money coming in. Should you buy startup business insurance when you are just opening a business? Can it wait until later? The answer is not as simple as yes or no. If you are ready to start a business and need help determining what insurance coverages you need, consider contacting Von Rock Law at (866) 720-0195 to learn more about your insurance options.
What Is Startup Business Insurance?
Startup business insurance is not a specific type of insurance policy. Instead, this kind of insurance is a collection of policies that a business should have to be protected. Which policies a business needs depends on the business itself. This collection can be made up of insurance policies such as:
- General liability: This policy is a “catch-all” policy that provides coverage in case of things like injuries or accidents, property damage, or non-physical personal injury on the business premises.
- Workers’ Compensation: This insurance protects a business’s employees in the event of a work-related injury. It pays for medical bills, as well as lost wages, disability benefits, and legal fees.
- Unemployment: Unlike other insurances, this is not a policy a business purchases. It is a program businesses pay into that then pays employees who are laid off while they seek other employment. New employers are assigned a 3.4% UI rate for the first two to three years in California, after which it changes based on experience rating and the balance in the fund, according to the State of California Employment Development Department.
- Professional liability: Also known as Errors and Omissions or malpractice insurance, this business insurance protects the business if a client claims negligence, undelivered services, or a mistake or oversight that costs their business money.
- Commercial property: Also known as business property or commercial real estate insurance, this protects things like the building, equipment, tools, inventory, furniture or personal property. It can also assist in covering business income if the business is unable to open due to a covered loss.
- Vehicle: This insurance covers any vehicles used for commercial purposes. It provides coverage for physical injuries and property damage, uninsured motorists, and other coverage similar to a personal auto insurance policy.
Some insurance companies offer a policy called a Business Owner Policy (BOP). A BOP typically includes general liability and commercial property insurance policies, and sometimes has other policies as well. This can make getting insurance for a startup business both easier and less expensive.
Why Do Businesses Need Insurance?
For some businesses, the need for insurance is clear. For example, an airport shuttle business needs insurance to protect passengers in case of an accident or a construction company needs insurance to cover property damage they may cause, employee injuries, or injuries to someone else on a job site.
Other reasons that a company needs insurance include:
- State or federal laws that require insurance, such as Workers’ Compensation, Disability or Unemployment as indicated by the United States Small Business Administration
- A client requires it before they will work with the company
- Investors may insist on insurance to protect their investment
- Insurance transfers financial risk from the business to the insurance company
What Kind of Startup Business Insurance Does Your Business Need?
The specific startup business insurance policies a business needs varies depending on several factors, including:
- Industry
- Location
- Business size
- Number of employees
- Business history
- Previous claims
- Annual revenue
Most businesses will need a general liability and a commercial property policy at a minimum. Other policies they may need include Directors and Officers, Errors and Omissions, Cyber Liability, Fiduciary Liability, Workers’ Compensation, Key Person, or Commercial Crime policies. Von Rock Law may be able to help you determine which policies are most relevant to your business.
How Much Does Business Insurance Cost?
There is not a single price that applies to all businesses when looking for startup business insurance. The cost depends on factors such as:
- How many policies the business needs
- The amount of coverage on each policy
- Number of employees
- Location
- Industry
- Type of business
Some insurance may not be immediately necessary, reducing the cost of the initial expense. For example, if a business owner is the only one working in their business, they may not need to pay for unemployment or Workers’ Compensation insurance until they hire their first employee.
When Should a Business Buy Insurance?
To provide the most effective protection to a business, purchasing business insurance immediately would be ideal. However, not all business insurance policies are necessary for all businesses, and some forms of insurance are not necessary until the business has reached a certain milestone. Some suggested timeframes for some of the most common startup business insurance policies would be:
- Business Property and General Liability: Immediately since business owners may be required to show proof of these policies to rent business space.
- Directors and Officers: When starting or thinking of starting an investment round because investors are likely to ask for proof of the policy.
- Employment Practices Liability Insurance, Workers’ Compensation, and State of California Unemployment: When the business hires its first employee. This is also the time to get disability and group health insurance, if it will be offered to employees.
These suggested timeframes are only recommendations and may be different depending on the nature of the business. You may need to purchase different policies or purchase them at an earlier or later time due to factors specific to your business. Working with a professional to determine which policies are necessary, when to purchase them, and how much coverage to purchase is the best way to protect a business.
Are You Ready to Protect Your Business?
Startup business insurance provides the various insurance policies that can ensure your business does not fail because of a mistake or the malicious or fraudulent actions of a director or employee. Purchasing the right policies, at the right time, can protect your business while ensuring that you are not spending unnecessarily on premiums. If you are ready to reduce your business’s financial risk by purchasing business insurance, contact Von Rock Law at (866) 720-0195 to discuss your business insurance needs.
