When it comes right down to it, insurance really is all about risk management. At any moment, some unexpected event can lead to loss of some kind and in varying degrees. Sometimes that loss is related to property and other times it relates to human life.
Other times it relates to intangible assets like intellectual property and those assets that fall in between that which is tangible and that which is not, such as in cryptocurrency. Crypto does exist in the blockchain, but only as ledger entries within a wide network of global computers, and if you are the cause of someone losing what amounts to a small fortune in crypto, you could be held liable.
With this in mind, it doesn’t matter what industry or service your startup will be working within. What really matters is that you can sustain losses that would devastate your business, or, on the flip side, you could be held liable for damages or losses sustained by another party.
Do you know which types of insurance you will need to protect your startup from potential losses? Before launching your new business, you should understand the role of insurance in risk management for startups.
Begin with the Basics – Business Owner’s Policy
If you will be operating from a physical location, you should start with the basics in what is called a Business Owner’s Policy, BOP. A BOP basically covers claims that can result from such things as theft, fire, and any other types of disasters named and covered in your policy. Other claims include bodily injury and property damage. A BOP may also cover claims that are related to injuries caused by advertising or those directly related to business operations.
When trying to determine if this is coverage you need, start with the following criteria:
- Do you operate from a physical location, rented or owned?
- Is there any chance you could get sued?
- Do you have anything that can be damaged or stolen?
The key to this particular policy is whether or not you will be operating from a physical location. It may even include a home-based business if this is where the bulk of your operations take place. This would be something to discuss with your broker or insurance company. The operative term here is “physical location,” so knowing exactly what that means is vital in terms of coverage.
Professional Liability Insurance
Sometimes you will be launching a business that primarily deals with professional services. This would be an amazing policy for someone who offers advice of any kind, with financial advice being right up there among the most common reasons to carry professional liability insurance.
This type of coverage includes such things as:
- Personal injury, slander or libel
- Inaccurate advice
Any of those things leading to loss of any kind can result in a claim being filed against you, personally, and could be assessed at more than your business is worth. This would leave you holding the proverbial bag. Doctors and healthcare professionals always carry millions in professional liability insurance and for very good reason. They deal with human life and what could be more valuable than that?
The one thing you should know about workers’ compensation is that it is regulated state by state. Therefore, although it is legally required in all states, except Texas, the amount of coverage and number of employees working for you may matter.
In effect, workers’ comp covers such things as:
- Medical benefits
- Lost wages
- Vocational rehab
- Death benefits
When you operate any kind of business whatsoever and have employees working for you, there is always a chance that they can get hurt. Sometimes this keeps them out of work for several pay periods and other times they are injured so severely that they will be unable to return to the workforce. Again, each state sets its own criteria and policy coverages, but this is something every employer will need if mandated in the state in which they will be operating.
Auto and Fleet Insurance
Will you be using vehicles in the line of work? This is extremely important because your personal auto insurance will most often not cover you in the event that you, or an employee, is in an at-fault accident. For example, if you have an employee that is involved in an vehicle accident while in the commission of their work assignment, their personal insurance will not cover their losses. An automobile must be covered under commercial coverage, or the claim will be invalid.
There are many different kinds of insurance you should carry as a startup. Although you may want to set your policy limits low in the very beginning to keep costs affordable, it is suggested that you raise those policy limits as your company begins to grow. Remember, commercial insurance really is risk management for startups and if you don’t want to lose the very business you’ve worked so hard to grow, keep coverage consistent with company growth.