The expenses associated with founding a startup include office or store space, tools, equipment, inventory, utilities, advertising, and insurance. It may be tempting to want to skip the cost of insurance, but business insurance is essential for startups.
According to a report by Mesa Community College, one of the top reasons startups fail is because they run out of money. If your startup isn’t insured, you risk losing everything to a lawsuit or unforeseen accident. Understanding how much it costs to insure a startup is an essential part of protecting your business.
This article will take you through what business insurance for startups is and the factors that impact business insurance costs. It will also explain how much business insurance for startups costs.
What Is Business Insurance for Startups?
Startups are new companies seeking to transform their industries by introducing innovative products or services or changing how goods or services are provided. Their goal is to scale quickly, which means they often need investors to help get them off the ground due to the high costs of launching a business that can handle rapid growth.
Business insurance for startups helps to protect you from lawsuits and can help pay for accidents. Expenses business insurance can help cover include:
- Costs associated with bodily injury
- Lost wages from workers’ compensation claims
- Repair costs for damaged property
- Legal fees for defending lawsuits
It’s important that you get the right type of business insurance for your startup’s unique needs. Common types of business insurance include:
- General liability insurance
- Professional liability insurance
- Workers’ compensation insurance
- Commercial property insurance
- Business owner’s policy (BOP) insurance
All startups need business insurance to protect the founders from potential lawsuits and expenses arising from property damage, negligence, reputational harm, or personal injury.
Without business insurance, you are responsible for paying the costs associated with these events. If you can’t cover the costs, these circumstances could be enough to shut down your startup before it has a chance to succeed. Additionally, the investors that many startups rely on will often require you to have business insurance before they choose to fund your company.
Factors Impacting the Business Insurance Cost for a Startup
The cost of business insurance for a startup varies, and depends on multiple factors. Your industry, location, revenue, how many employees you have, and how long you have been in business all affect your business insurance costs.
Industry
The type of industry you are in will impact the cost of your business insurance. Higher-risk industries tend to have higher insurance premiums. For example, a tech startup with primarily office employees will have cheaper workers’ compensation insurance than a delivery services startup that requires its employees to travel and lift heavy objects.
Location
Startups need to decide whether they will be providing services, doing business online, or selling products within a brick-and-mortar store. A startup that has a physical location customers can visit or that travels to clients’ locations will need to pay more for general liability insurance than a company that operates out of a home office or provides primarily digital services.
The state your startup is in can also affect how much you pay for business insurance, as insurance rates and requirements depend on state laws.
Revenue
Revenue is the money you earn from selling your goods or services. Your revenue can affect how much you pay for business insurance. Depending on your industry, increased revenue can drive up your insurance premiums, as your risks tend to grow alongside your sales. For instance, a startup in the construction industry would be more likely to pay higher premiums with rising revenue than a startup in e-commerce, as the risks associated with manual labor are much higher.
Number of Employees
The size of your staff also affects your business insurance costs. General and professional liability insurance premiums can increase as your business grows, since the more employees you have, the higher the risk of accidents.
Experience
As startups are newer businesses, they typically don’t have the claims history that other companies might have, which is a good thing. Generally, the fewer claims you have against your business, the cheaper your insurance will be.
How Much Is Insurance for a Startup Business?
The cost of insurance for your startup business depends on the factors mentioned above, and the type of insurance you choose. Your startup’s specific needs determine the type of business insurance policy or policies you should get.
- General liability insurance protects your business from lawsuits arising from bodily injury, property damage, and defending lawsuits. General liability insurance can help cover you if someone who isn’t an employee injures themself at your business and can help pay for their medical expenses. It can also help you pay repair or legal costs if you accidentally damage a client’s property or need to defend your startup from bodily injury, defamation, or false advertising lawsuits.
- Professional liability insurance helps pay for legal costs from negligence, misrepresentation, and bad advice claims. Professional liability insurance covers you if you make a mistake that costs a client money, share inaccurate information, or get sued for negligence.
- Workers’ compensation insurance helps pay for employees’ workplace injury expenses, including medical costs, lost wages, and permanent injury benefits.
- Commercial property insurance helps to protect the building your startup operates out of, as well as any business equipment or inventory. While commercial property insurance can help pay for damages caused by storms, fires, and burglaries, it doesn’t always cover damage from floods.
- BOP combines property and liability insurance into one policy, helping to save money and ensure full coverage for your startup. Bundling policies is convenient as it can help you create a customized insurance plan that meets your startup’s particular needs.
Examples of Annual Cost of Business Insurance for Startups
| General liability insurance | Professional liability insurance | Workers’ compensation insurance | Commercial property insurance | BOP |
| $807 | $1,073 | $893 | $1,500 | $1,673 |
Sources: The Hartford, Progressive, and TechInsurance
Conclusion
The cost of purchasing business insurance for your startup depends on your industry, location, revenue, number of employees, experience, and the types of coverage you choose. Business insurance can protect you from paying out of pocket to repair property damage or for legal and medical expenses and injured employees’ lost wages.
Common types of business insurance for startups include:
- General liability insurance
- Professional liability insurance
- Workers’ compensation insurance
- Commercial property insurance
- BOP
The costs of not having business insurance for your startup can potentially far outweigh the cost of insuring your business–and in some cases can sink your business before it has a chance to turn a profit. However, choosing the right insurance for your startup can help protect your business from the expenses associated with lawsuits and accidents.
