Why startups need insurance, what kind of insurance a startup needs, and how much startup insurance costs. Insurance plays a vital role for any startup
STARTUP INSURANCE
This article will discuss why startups need insurance, what kind of insurance a startup needs, and how much startup insurance costs. Insurance plays a vital role for any startup; it acts as a safety net for entrepreneurs and helps them take risks to grow their business without worrying about financial risks.
Why does a startup need business insurance?
Startups face many risks, including financial challenges, legal issues, accidents, and operational setbacks. Business insurance offers protection against these risks by covering assets like buildings, equipment, data and employees. With the right coverage startups can focus on growing their business with greater peace of mind.
Insurance premiums are tax-deductible, and certain types of insurance are legally mandatory for businesses with employees. Public liability insurance protects against injury or property damage, while professional indemnity insurance protects against professional negligence claims. Startups need business insurance to protect against risks like lawsuits, accidents, theft, and cyberattacks. Without it, they may have to cover costly legal fees alone. For example, the startup could be sued if an employee gives a client wrong advice that leads to financial loss. Comprehensive insurance—including errors and omissions coverage—can help cover legal costs and settlements in such cases.
Here is a list of insurance policies for startups:
Public liability insurance for startups
Public liability insurance covers the costs and compensation if a third party—like a customer or client—is injured or their property is damaged due to your business. It’s especially important for businesses that regularly interact with the public. Examples include spilling coffee on a client’s laptop or someone slipping on a wet floor.
It also covers accidents that happen on client sites or involve mobile professionals. While not legally required in the UK, many contracts—especially in the public sector—may ask for it. Typical policies offer up to £1 million in coverage, legal support, and access to helplines.
Professional indemnity insurance for startups
Startups should consider protection against errors or negligence in professional or advisory services. This coverage provides protection against client lawsuits due to mistakes that cause financial losses, which is important for businesses that provide advice or handle client data.
A professional indemnity policy covers legal costs and compensation up to policy limits, including for breach of confidentiality, professional negligence, financial loss, defamation, and damage to goods. Certain industries, such as law, accounting, finance, architecture, and healthcare, may require this coverage. Without it, businesses risk significant compensation payments and time spent defending charges.
Employers’ Liability Insurance for Startups
A startup must have employer liability insurance, a legal requirement in the UK if it hires any employees. This policy covers employee claims for work-related injuries or illnesses. It applies to all employees, including full-time, part-time, casual, and contractors.
You need this insurance if you pay hourly, provide equipment, and deduct taxes. Coverage includes incidents such as employee accidents in the workplace. Non-compliance can result in fines of up to £2,500 per day. There are exceptions for family employees. When getting this insurance, provide details of the number of employees and roles. It is usually included in the same business policy as public liability insurance.
Cyber insurance for startups
Cyber liability insurance protects startups from data breaches and cyber threats to internal systems, safeguarding sensitive data such as social security numbers and credit card details. It covers expenses such as identity and data recovery, investigation services, legal fees, and settlement costs for business partners and customers affected by breaches.
While not mandatory, protecting against cyberattacks and potential ransom demands is strongly recommended. The insurance does not prevent hacking but can compensate for losses, pay ransoms, provide PR services, cover breach costs, and handle claims from hacked customer data. Costs vary depending on the company’s size, existing security measures, and data sensitivity.
Vehicle insurance for startups
Separate business vehicle insurance is necessary when using vehicles for work purposes, including deliveries, site visits, and carrying passengers. Insurance options generally include commuting, business use, and commercial travel, including social only. Third-party insurance is a minimum requirement, while comprehensive insurance covers the named driver’s vehicle.
Coverage can include cars, vans, lorries, or motorbikes for sole traders or companies, including options for overseas travel and courier work. Additional niche insurances exist depending on individual circumstances, such as taxi insurance for passenger transport. If you are unsure about coverage, it is advisable to contact the insurer directly. Business vehicle insurance is more expensive than social use insurance but is essential for proper coverage.
Buildings and Contents Insurance for Startups
Building insurance applies to owned premises and is suitable for SMEs, small shops, offices, pubs, and home-based offices. It covers the cost of rebuilding the property, not its market value, providing protection against fire, flood, storm, theft, and vandalism.
Contents insurance covers physical damage, including fixtures, fittings, and trade stock. It may also include separate policies for electronic devices such as laptops and printers. These insurances can be bundled into one policy for convenience.
Health insurance for startups
Health insurance (or Mediclaim) helps cover medical expenses and is especially valuable for small business owners offering group coverage to employees. It not only boosts morale and attracts talent but also supports legal compliance.
Plans vary—individual, group, family floater, and top-up—so choosing the right one means assessing employee needs, comparing options, checking network hospitals, and reviewing benefits. Health insurance reflects a strong commitment to employee well-being and can enhance business performance.
Other Types of insurance for startups Cover
Every business’s insurance needs differ, so it’s important to tailor your policy accordingly. Additional covers include product liability insurance for injuries caused by products sold, stock cover for stolen or damaged inventory, high-risk insurance for hazardous occupations, laptop insurance for theft or damage, and turnover protection for a drop in income. Avoid auto-renewal policies; shop for the best deals, understand the coverage details, and minimise claims for better future rates.
Startup insurance costs
General liability insurance for startups typically costs between $400 and $750 annually, providing protection against basic liability damages and lawsuits. However, the exact cost varies based on factors such as business size, risk level, policy limits, and deductibles. For a business owner’s insurance policy that combines general liability and commercial property insurance, the annual cost ranges from $600 to $1200, depending on factors such as the number of employees and annual revenue. Professional liability insurance, also known as errors and omissions insurance, costs between $500 and $2000 annually, depending on the contract value and potential damages.
Workers’ compensation insurance typically ranges from $2000 to $3000 per year for a startup with mostly clerical staff, while employment practice liability insurance can cost between $800 and $4000 annually. Cyber liability insurance costs between $500 and $5000 annually for startups, depending on factors such as data sensitivity and business operations. Several factors affect insurance costs, including business size, industry, scope of coverage, location, and level of employee risk.
Conclusion
Business insurance costs are unique to each business, varying based on industry, size, and specific needs. This is for sole proprietors operating from home or coworking spaces with minimal digital data storage. However, expanding operations or dealing with sensitive data may require a greater investment in cyber liability insurance.
Customising insurance coverage according to current and projected needs is essential for startups, which are just as vulnerable to risks as established businesses. Protecting business assets from potential worst-case scenarios is critical.
FAQs
Q1. How much does startup insurance cost?
Startup insurance costs are unique to each business, varying based on factors such as industry, size, and specific needs.
Q2. Why do startups need insurance?
Startups need business insurance to protect themselves from the same risks, such as lawsuits, accidents, theft, and cyberattacks. Without insurance, startups must shoulder the legal costs on their own, which can be financially damaging.
Q3. What is cyber insurance for startups?
Cyber liability insurance protects startups from data breaches and cyber threats to internal systems, safeguarding sensitive data such as social security numbers and credit card details. It covers expenses such as identity and data recovery, investigation services, legal fees, and settlement costs for business partners and customers affected by breaches.
