Your startup company is like a fledgling bird, with you as the doting parent. In order to raise your baby right and make it strong, you have spent countless hours in preparation. Just as a mother cardinal tirelessly gathers materials to line her nest, you have written and implemented a comprehensive business plan and secured the capital you need to run your startup. There is just one missing link, the final piece that will protect your dream company from the perils of the big, bad world: business insurance. Read on to learn why it is so important to devote serious attention to the type and extent of the coverage you ultimately buy.
When considering insurance, your first priority needs to involve covering all of your legal bases. Find out what types of insurance are required in your state. Most states will demand that you purchase workers’ compensation coverage. This protects you against being sued for negligence or damages by your employee in the event of a work-related accident or illness. In return, your insurer compensates the injured employee for medical bills and lost wages until he or she is able to return to work. If the employee ultimately makes the decision to quit permanently, your coverage may pay the costs associated with hiring and training a replacement staff member.
The next question you need to ask yourself is this: What coverage is required by your landlord or the person from whom you lease your property? For your own protection and usually required by your building’s owner is general liability insurance. Without it, you are seriously liable in the event of any number of scenarios:
- Bodily injury. You are protected if someone gets hurt on your property, including the cost of his medical expenses.
- Property damage and data loss. You are protected if an accidental act on your part causes damage to a client’s data or property.
- Personal injury. If you are sued for libel or slander, most general liability packages will pay for the claim and even cover the cost of an attorney if you need to defend yourself in court.
It is important at this juncture to say a word about homeowner’s insurance. Many new business owners mistakenly believe that they do not need to purchase any additional coverage for their home-based business if they already have homeowner’s coverage. Although many of these policies offer you the ability to purchase additional riders that address business-related needs, don’t expect them to be included in your basic package. If a client comes to your home office to drop off her taxes and slips on your icy driveway, you will be in a world of trouble unless you either purchase additional coverage on your homeowners policy or buy into a business insurance plan.
Finally, don’t forget about yourself and any other co-owners, principals or directors of your venture. To that end, there are two types of policies that you should consider:
- Professional liability insurance. This is also often called errors or omissions or malpractice coverage. If your business will be providing some sort of service or advice for a fee, you definitely need this protection. If all you will be doing is selling products, you can pass it by. Professional liability coverage protects you if your client holds you responsible for providing a service that did not yield the expected results or, conversely, if you fail to provide a service. Most policies will cover the cost of your legal defense in the event of a lawsuit as well as any judgments or settlements against you. You will be protected even if the lawsuit is found to be groundless. Considering how much it can cost to defend yourself against claims like this, whether they are based on fact or are groundless, this type of insurance can truly be a lifesaver that can mean the difference between your business’s survival and bankruptcy.
- Directors and officers insurance. This coverage specifically protects you and any of the other men and women in leadership roles in your company, including your board of directors if you have one, against liability claims arising out of the company’s operations. Payable to those in leadership positions, this insurance covers all of you if you are accused of conducting wrongful acts such as fraud. If your company is sued because of these allegations, directors and officers liability coverage will pay the legal costs involved in defending your business against these charges.
- Flood coverage. If your company is located in an area that is subject to water damage due to flooding, look into getting business coverage from the National Flood Insurance Program. This federal entity can cover you in the event of flood-related financial losses. Because extensive water damage can potentially cripple or even shut down your business for days, weeks or even months, it is in your best interest to look into flood coverage if you believe you are vulnerable, since this type of protection is usually not included in general property insurance policies.
You might think of your startup as that young cardinal preparing to make his first solo flying voyage. As his sponsor and guardian, you have taken great care to put all of the possible protections in place. While even the most airtight plan can’t totally insulate him from the buffeting of the wind or the onslaught of unpredictable disasters, you have done all you can. Think of the insurance policies you purchase as bodyguards hired by you to travel alongside your new endeavor, safeguarding it as much as possible from danger. The rest of your success depends on your innovation, your hard work, your location and competition, the generosity of your investors and a bit of luck.