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3 types of business insurance all start-ups should know about

Business insurance is not something that should be set aside and ignored; it should form part of any start-up budget and should be maintained commensurate with the size and scope of the operation.



3 types of business insurance all start-ups should know about

For many start-up companies, insurance is the last thing on their mind.

Most of an entrepreneur’s energies are exhausted in the excitement of launching a new product or service and in gaining traction and momentum for that product or service.

While poor planning is regarded as the reason for 80% of start-up failure, failure to cover your new business assets can be equally crippling.

Those business assets include you, your property, your staff and those customers or clients who patronize your place of work.

Smart entrepreneurs and business management know that things don’t always go according to plan. Business insurance exists to protect you and your assets against unexpected planned events.

Business insurance is not something that should be set aside and ignored; it should form part of any start-up budget and should be maintained commensurate with the size and scope of the operation.

Many small businesses and start-ups will complain that business insurance is a cost and they cannot afford. However, it would be more true to say that it’s an investment you can’t afford to ignore.

Workers’ compensation insurance

The moment the first employee steps into your office or place of work you need to have workers compensation insurance in place.

It should be part of the businesses insurance policy that all employees and staff who are working for your start-up are covered by workers compensation.

The statutes that cover most states cover the requirement for workers compensation for all employees.

In some states, where there is proof that a person is in a financial position to provide their cover, you may be able to obtain a permit of self-insurance.

The Industrial Commission of Arizona would be one such state body where this provision may be available and you should check for something similar in your own state.

Insurance is required when you hire your first employee, even a part-time employee. Employers who fail to demonstrate this duty of care through workers compensation insurance can be held liable and may incur financial penalties.

Workers compensation usually covers things like disability and death benefits as well as general medical treatment that is required as a result of working for that business.

However, a distinction needs to be made between certain kinds of business insurance and medical coverage. Workers’ Compensation is a form of coverage that is designed to cover injuries and illness at work.

Health Insurance (whether long-term or short-term disability coverage) is a benefit that some employers offer their workers for preventative care and medical expenses. The cost and issues for employers and health insurance are contentious and you should be familiar with the standards governing your enterprise.

Management and professional liability insurance

Also known as errors and omissions (or E&O) insurance, a professional liability insurance policy provides protection for small businesses and start-ups against negligence claims.

These claims may come against a start-up where the case can be made that the injury was caused as a result of the start-up’s negligence, mistakes or failure to perform.

There are a number of policies that exist to cover small businesses and start-ups against error and omission.

Start-ups are particularly valuable since their product or service may be relatively unknown and even held with some skepticism.

It is common for each industry to have its own set of customized policies in order to account for the many differences that exist between products and services.

As a new start-up, you should check what professional indemnity you might need in your particular profession or start-up service business.

Business income insurance

We don’t plan it and most of us hope it never happens. But disasters do strike all kinds of businesses, and no business is immune.

If your start-up does experience a disaster, it is highly likely that your operations will be suspended. Business income protection also referred to as business interruption insurance safeguards your assets and your business at times like these.

This kind of insurance is of particular importance for a solo entrepreneur who may not have the safeguards that employees have in the workplace.

Although at periods of time, as a result of a disaster, your business would likely suffer a loss of income, this insurance is there to protect you. In effect, this insurance compensates you for the loss of income that occurred as a result of these unforeseen events.

This insurance can literally save your start-up from permanent failure and disaster. Different insurers have different policies and arrangements, and it’s a good idea to investigate two or three income insurance policies before you settle on anyone in particular.

Having weighed up the types of insurance you’re going to need, it is just as important to weigh up who it is that will hold your policies for you.

This list of insurance policies is by no means exhaustive. Each start-up will have insurance according to its own industry. The manufacturing industry will have different requirements and expectations to the retail industry.

Those who are starting up a digital agency will have different insurance needs than someone selling food online.

Moreton Point here is to remember the value of an insurance policy. Start-ups should not neglect this important phase in their planning and budgeting.

DISCLAIMER: This article expresses my own ideas and opinions. Any information I have shared are from sources that I believe to be reliable and accurate. I did not receive any financial compensation in writing this post, nor do I own any shares in any company I’ve mentioned. I encourage any reader to do their own diligent research first before making any investment decisions.

David Trounce is a small business consultant living in Port Stephens Australia. He is the Founder of Mallee Blue Media and specializes in small business marketing and management. David also writes for, My Customer and the Huffington Post.