There are a lot of moving parts to a startup business. While all businesses need some amount of insurance protection, technology startups have some special needs. Here is a roadmap of insurance coverage that businesses can use to make sure they minimize their risk and liability.
Errors & Omissions Liability (E & O) + Cyber/Network Liability
This is a form of liability insurance that helps protect – professional advice and service – providing individuals and companies from bearing the full cost of defending against a negligence claim made by a client, and certain damages awarded in such a civil lawsuit. The coverage focuses on alleged failure to perform on the part of, financial loss caused by, an error or omission in the service or product sold by the policyholder. These are potential causes for legal action that would not be covered by a General Liability Insurance Policy which addresses more direct forms of harm. Cyber/Network Liability can usually be added to an E&O Policy to protect your exposure of a network going down or private information leaking and causing financial damage. You can find out more details for Cyber/Network Liability here.
Get it when: Business goes beta/live, releasing software or app or a client contract requires the proof of coverage.
Protects employer in case of bodily injury to employees if they get hurt on the job. The injury must happen in the course of or arising out of employment to be considered a Workers’ Compensation claim.
Get it when: Once the first employee is hired whether full time or part time. Founders/owners have the option to exempt from purchasing Workers Compensation insurance for themselves.
Commercial General Liability Insurance Policy and
Commercial Property Policy
Commercial General Liability covers bodily injury or property damage cause to a 3rd party. Commercial Property coverage protects a business’s own business property within the office. This policy can also cover the loss of use of the premises in the event of a covered loss such as a fire.
Get it when: When you start a business but at minimum when office space is leased or when this insurance is required by contract.
Directors & Officers Liability Insurance (D & O)
Directors and Officers provides coverage for a loss as a result of a legal action (whether criminal, civil, or administrative) brought for alleged wrongful acts in their capacity as directors and officers of the company. Important to carry this coverage on these two situations: first, high-profile potential board members will most likely require this; second, if you are getting financing or angel funding, your exposure to claims increases.
Get it when: Start a new company, but at minimum once you have investors or angel funding or are required by contract.
Employment Practices Liability
Protect your organizations against employee suits for discrimination, wrongful termination, sexual harassment, failure to hire, etc.
Get it when: You have 4 employees or more.
Key Person Insurance
Life insurance for key employees instrumental to the success of the company. Disability insurance may be even more important. Covers part of the cost to replace expertise after an essential founder’s death
Get it when: Company starts making a profit, have investors or want to sustain continuation of the company in case of a founders death. Can be required by investors.
Additional Coverage to consider after Start-up.
Umbrella Liability – Provides excess coverage over your other policies.
Employee Fidelity and Employee Benefits Liabilityx– Provides coverage for embezzlement or other stealing of money by an employee, and for mistakes in administering an employee benefit.
Foreign Liability – Travel outside of the US by employees presents exposures not covered by your standard liability policies such as automobile liability if renting a car, general liability for rooms and or exhibit space you may rent. Covers injury to employees and expense to return them to the US for treatment if necessary.
Business Interruption – (if you have revenues)- Limit chosen should be in the amount of annual revenues less variable cost.
Auto Liability Insurance – In a package with other coverage, or separately, you will need coverage for owned autos, and business use of employees autos (non-owned autos) and autos your rent (hired auto).
Patent Infringement Liability – Is your product patented or do you use patented parts or ingredients? If so you may be a target for a patent infringement suit from a competitor. Coverage may be styled to defend against other parties alleging an infringement or an enforcement policy to stop infringement or both.
Employee, Dental, Disability ETC.-
At ACC Brokers, we are eager to work with new startup prospects and tailor a roadmap that fits your specific needs. Contact us for more info.
Author: Cesar Jurado