Startup Business Insurance: Understanding How Insurance Can Help You as a Founder

Startups are in-thing right now. Lots of people are thinking of launching the next big idea. Everyone wants to own the next Facebook. Some of them have put them into actions.

If you are reading this, I suppose you are one of the startup founders. Good for you in taking the first step.

One key characteristic of startups is growth. That should be your focus. Growth in users and revenue.

In your pursuit of growth, there is one thing you should also think about.


In this article, you will learn how startup business insurance can help you to manage certain risks. We will also share the common insurance needs for startups.

How Can Insurance Help You as a Startup Founder?

Let me make a guess:

Your priority is growth.

I understand that.

You should have this priority. So we are going to show you how insurance can help you to focus on this priority.

1. Insurance Balances Your Risk Profile

You are already taking lots of risks in your startups. Certain risks are inevitable. For example, you could be testing a new business model. Or you are extending a new way of doing things.

But, there are also risks that you can manage. These are risks that are common almost to all businesses. That’s why there is insurance available for different type of risks.

You should have no reason to take the transferrable risks. Insurance will help to improve your risk profile.

With a peace of mind, then you can concentrate on other priorities.

2. Appeal to Potential Investors

Chances are, you are looking for funding. Venture capitals are risk-averse. They only take calculated risks. It is reasonable for them to expect the same from you.

Using insurance to manage your risk shows your maturity in business management. It will also enhance potential investors’ confidence that you will not lose their money.

In fact, if you are looking for advisors to be part of your board, Directors & Officers (D&O) insurance is a must. Most investors will request D&O insurance.

3. Appeal to Potential Customers

You are managing a startup. Your startup does not have any credibility. Why should your customers trust you?

Trust is a bigger issue if you are managing sensitive information or financial transactions.

How do you convince your customers to trust you?

One way is through insurance. Having an insurance to manage some risks show the commitment you have.

Your customers will also have more assurance. If you breach their information, your insurance company will compensate them.

Types of Insurance Startups Needed

There are many business insurances available. Not all are suitable for startups.

We have selected a few that most startups will need.

Keyman Insurance

What is the most important asset of the startup?

The people.

It includes you, the founder. It also includes other key employees. Employees who write the program. Employees who bring in sales.

These are the important people of a startup.

What if they have a premature death?

Imagine the impact on your business when that happen. Your sales might suffer. Employees morale will be low.

Keyman insurance provides the business with cash flows when a key person have a premature death. The cash will give you extra time to find solutions.

Directors and Officers (D&O) Insurance

Startups have high risks. Sometimes, a decision made by the director might result in huge losses.

When that happen, investors might go after the director instead. They can sue the director for negligence. Sometimes, even the customers may go after the director as well.

D&O insurance protects the director in this situation.

Most D&O insurance covers the following:

  • Legal costs in defending your case
  • Investigation costs incurred by engaging third parties
  • Civil fines and penalties that are insurable by law

Cyber Liability Insurance

Big data is hot. Chances are, you are collecting data on how your users interact with your app.

These data are useful for making business decisions.

If you are collecting private or sensitive data, then you have to be careful.

Imagine some hack into your system and get these data?

You will lose the trust of your customers. Your customers can also sue you for damages.

These are cyber risks. Cyber liability insurance protects you from cyber risk.

Most cyber liability insurance covers the following risk:

  • Personal or Corporate Data liability
  • Data Security Liability
  • Investigations costs
  • Legal expenses
  • Regulatory penalties and fines
  • Cyber Extortion
  • Public Relations, Crisis Management, Forensics and Security Specialist Services

Errors and Omissions (E&O) Insurance

Your startup performs a certain service to its users. That’s why you have users in the first place.

Sometimes, your users will rely on your service to make business decisions. For example, if you are providing an accounting software. Users will submit the information to regulatory authorities.

Your app might work 99 percent of the time. But under some extreme scenarios, your app might make mistakes.

When your users rely on the information provided and suffer loss, they will be unhappy. They might even sue you for their losses.

This is where you need an E&O insurance.

E&O insurance protects your business when you make mistakes. It covers the legal costs and compensations you have to make.

Work Injury Compensation (WIC) Insurance

Do you have employees?

If the answer is yes, you may want to review the Work Injury Compensation Act (WICA).

Under WICA, employers are responsible if their employees suffer work-related injuries.

You might be thinking:

I am managing a startup. What kind of work-related injuries can my employees suffer?

If your employees need to go out of office, then there will be a risk of work-related injuries.

For example, you should expect your business development manager to be out of office. They have to meet your potential clients. What if your manager got into an accident?

WICA define this situation as a work-related injury.

Work Injury Compensation insurance helps you to comply with WICA. It covers all the expenses you have to incur when your employees suffer work-related injuries.

Trade Credit Insurance

Cash is the lifeblood of any company. It is even more important to startups.

If you are providing services to large corporations, the contract amount can be huge.

What if your client default on your payment?

You are going to suffer huge losses.

Trade credit insurance will indemnify your losses up to 90%. Moreover, it will help you get a sense of your client’s credit standing before you commit to them.

Getting An Insurance for Your Startup

There are 2 questions you have to consider if you decide to get an insurance:

  1. When to buy an insurance?
  2. How to get one?

When to Buy an Insurance?

It depends on your business nature.

For most cases, the crucial time is the moment you start providing services. At that point, you are a business. Which mean that your users can sue you if you make a mistake.

But the timing can be earlier if:

  • You have sales manager looking for the first client; or
  • You have outside funding before providing services.

In the first scenario, you would need a WIC insurance. For the second, you may need a D&O insurance.

If cash flow is an issue, you may want to wait until you generate revenue.

How to get Startup Business Insurance?

There is a common misconception about insurance:

It is better to skip the middleman and go straight to the insurance company.

The argument is that the premiums will be lower.

This is true to a certain extent. For personal life insurance, there isn’t much difference.

But, there is a huge difference for business insurance.

Every business is different. Thus, the business insurance needs are different as well.

For startups, the insurance requirements are specific. You do not need certain coverages under the general liability insurance.

An experienced agent or broker will be able to help you determine your needs. Then they can negotiate the terms and coverage with the insurance company.

Yes, you do pay commissions to them.

But, paying a higher price to get a good coverage is better than paying a lower price for a wrong coverage.

Moreover, the commissions also include other services. These services include risk management consultations and claims processing.

Making claims is a frustrating process. The agent or broker would be able to help you on that.

Also, I am sure you want to interact with people who can understand the dynamics of startups.

Insurance agents or brokers are more likely to be in that position than insurance companies.

Bottomline: Approach a middleman to discuss your risk management needs.


Startups have lots of risks. You can manage some of them using insurance.

Managing these risks with insurance give you a peace of mind. You will be able to concentrate on other more important matters.

Would you like to understand more about these risks your startups are having? Please contact us for a free consultation. We love to speak to you!