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Business Insurance for Start-Ups
Directors & Officers Insurance
If you are looking to raise money, most institutional investors, such as venture capital firms, will stipulate as part of the term sheet that a proper D&O policy must be in place before the financing is complete. When creating your Board of Directors, savvy board members will ask about the adequacy of your D&O insurance. D&O insurance protects your board of directors as well as the leaders of your organization if named in lawsuits alleging a breach of fiduciary duties. This policy will also extend coverage to the business entity itself. Settlements, as well as costly legal expenses, are both covered under a D&O policy.
Employment Practices Liability Insurance
As soon as your business starts hiring, you need to start thinking about EPL insurance. EPLI can protect your company from employment-related lawsuits such as sexual harassment, discrimination (gender, religion, pregnancy, age, etc.), wrongful termination, failure to promote, and more. Often EPLI is combined with D&O insurance to create what is often known as a “management liability policy.”
Technology Errors & Omissions Insurance
Any startup that provides professional services and consulting to others based on professional expertise should consider E&O insurance. E&O protects against claims that allege damages arising from technology services you have provided and your customers and partners will typically require it. As the technology sector continues to grow, businesses categorized as software as a service (SaaS), web development, payment process, and anything else handling sensitive data will increasingly require a technology E&O policy.
Cyber Liability Insurance
In 2019, every company that has an online presence should have a cyber liability policy. If you store customer credit card information, Social Security numbers, or any other personal information online, cyber insurance adds a layer of protection in the event of a data breach or software outage. Cyber insurance policies can protect from the perils associated with being an online business, such as data breaches, cyber thefts, and phishing attempts. Cyber liability and tech E&O are often combined to create broader coverage for tech companies.
Fiduciary Liability Insurance
If your company offers employee benefits such as health insurance, 401(k)s, and stock options, then you probably have a person or a team of employees that are responsible for overseeing these benefits. Fiduciary liability insurance protects your company and your employees if someone responsible for these benefits makes a mistake for which they can be held liable. Fiduciary insurance shields your business from claims of mismanagement and the legal liability arising out of their role as fiduciaries. It will cover all associated defense costs in claims of errors and a breach of fiduciary duty.
Recommended Coverage for High Growth Start-Ups
The more your startup grows, the more complex your insurance needs will become. Here’s a quick look at how a high-growth startup’s most basic coverage needs can evolve over various phases of growth:
First Employee Hire: Workers Compensation
Required by individual states
Covers medical expenses and lost wages incurred by employees injured while working
Cost: $500-$2,500
Operations Begin: Commercial General Liability Insurance
Protects your business as it grows
Covers lawsuits claiming bodily injury or property damage from your product or operations
Provides coverage for personal and advertising injury, such as libel and slander
Cost: $500-$3,000
You’ve Got Office Space: Commercial Property Insurance
Often required for lease agreements
Covers replacement costs for business property (i.e. computers, furniture) damaged or lost in events such as fires or thefts
Cost: $500-$3,000
You’re Up and Running: Errors & Omissions Insurance
Needed by most tech companies, required by some clients
Covers third-party lawsuits claiming financial injury due to the failure of your product or service to perform as intended
Cost: $500-$3,000
You’ve Got Data: Cyber Liability Insurance
Access to personal data (addresses, emails, names, etc.) brings new risk
Covers a wide range of claims, including financial injuries due to data loss, DDoS attacks, or virus transmission in a security breach
Cost: $1,500-$7,500
Funding Round Closed: Directors & Officers Insurance
Required within 60 days post-closing on a round of funding
Covers lawsuits brought against a director, officer, or the company for financial injury as a result of mismanagement
Cost: $3,500-$10,000
You’ve Gone Global: Foreign Package
International offices or travel bring new risks
Extends many existing coverages to foreign operations such as general, auto, and employment practices liability
Cost: $2,500-$7,500
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