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Insurance for Startups: 5 Types of Insurance Every Tech Startup Needs

 
 

Tech startups are full of challenges. In order to survive, they need to secure funding. They also have to find and furnish offices, upgrade and maintain reliable server tech, and hire trustworthy and talented staff. To add to all that, their leaders need to have a clear vision for how to grow the company and also for how to mitigate the inherent risks they will encounter as they build a company from the ground up.

That's a tall order for even the most seasoned of executives, so it's no surprise that according to a study by Harvard Business School, 75% of venture backed startups fail. In order to be part of the 25 percent of startups that make it, entrepreneurs have to find every competitive advantage and mitigate their business risks as much as possible. One way that tech startups can do that is by making sure they have the proper insurance.

It may seem surprising that a lack of insurance could contribute to the fall of a startups, but with so many opportunities for failure, insurance can actually help provide some much needed backup support in a number of different startup scenarios. Obviously, each tech startup is different and will have their own unique insurance needs, but for the most part, entrepreneurs should consider these basic protections for their assets and for themselves:    

1: General Liability insurance

General Liability protects startups from lawsuits related to bodily injury and property damage and can also protect against non-physical acts such as accusations of libel and slander due to company advertising.  This overage is provided for claims that occur in the USA, Puerto Rico, and Canada. However, many carriers offer international coverage for companies doing business overseas.

One of the most important parts of general liability insurance is the coverage it provides for the defense costs if and when you encounter any of the above legal claims.

2: Employment Practices Liability Insurance (EPLI)

Once your startup has a team of talented professionals, startups need to consider employment practices liability insurance in case their hires bring suits for discrimination, sexual harassment or wrongful termination. Without it, litigation against such claims can run rather expensive—an employer can spend up to $250,000 in legal fees alone to take a case to a jury verdict at trial.

Instead, employment practices liability insurance can provide much-needed financial support if an employee sues, helping cover high defense costs.   

While shopping for this kind of insurance, startups should make sure they get to have a say when it comes to choosing the best counsel that will defend your company for baseless claims of injury or negligence.

3: Directors and Officers Liability Insurance

Like the names suggests, startups need this type of insurance to protect directors, officers, and any C-level executives against class-action lawsuits, shareholder lawsuits, and any claims alleging “wrongful” business decisions that would negatively affect the company’s value, its stock value, or company assets.

There are different types of Directors and Officers liability coverage that can protect individual directors or officers by covering defense costs or even protect an entire company against class-action claims.  

4: Property Insurance

While pretty common, property insurance will protect your startup’s buildings, devices, inventory, and computer/network/web servers against physical damage.

There are usually several options, but many tech startups opt for “all risk” insurance, which covers a wide variety of events and including flood and fire, costs of repairs, and network disruption and equipment malfunction.      

5: Cyber/Media Insurance

We live in the age of the cyber-attack and the data breach. Enterprise companies spent $1.3 million on average recovering from data breaches, while small-to-medium-sized businesses spent $117,000 on average.

If your startup specializes in customer or client data collection, you must follow best practices to protect that information from leaking out at the risk of financial and reputational damage. You should also consider cyber, or media, insurance that can include coverage for crisis management, defense costs, and stolen client data.

These five types of insurance should be on the radar of every tech startup to provide protection and a safety net as they grow and gain influence. Each insurance type will be explored in more detail in future blog posts, so stay tuned to this space for updates.

For more information, help with policies, or any questions about insurance for your startup, please reach out to The Cody Group NY.

Dominic Piccirillo