If you’ve launched a startup, then congratulations! You’ve joined a dynamic part of the economic sector. Nearly 90 percent of all companies in the United States have fewer than 20 employees. But small business owners may be unclear about whether their startups need insurance.
As a general rule of thumb, it depends on how big your business is. If you’re still brainstorming in your garage or second bedroom, your needs for insurance might be limited.
But the minute you start to sell products or services to the public, you need insurance. Insurance protects startup owners from product liability claims. And if the public comes to your place of business, you need insurance against someone’s potential injury.
Don’t think that establishing a limited liability corporation (LLC) protects you fully. It protects business owners from being personally sued for liability, but it does not protect against suits in general. When you hire your first employee, you also need worker’s comp insurance.
Here’s a brief look at the types of insurance a startup may need.
General Liability Insurance
General liability insurance is close to a must-have for all businesses that product a product or service, deal with the public and have employees.
It will protect your business, employees and yourself from damage claims that stem from injury or property damage, the need for medical care, libel and slander and any costs the business incurs while defending against lawsuits.
Other businesses and lenders will often want to see proof that you have obtained general liability insurance for your startup.
You likely own property related to the business, whether you work at home or have an office. Property insurance protects against damage to any property used for the business, including computers and furniture and so on. It also protects any commercial real estate you own and use for the startup.
Homeowners need to understand that their homeowner’s policy will not protect them against business-related losses even if the startup is run out of their home. You may be able to get a rider on your existing home insurance for the startup business, but you need to have the business property covered.
Professional Liability Insurance
This is often called “errors and omissions” insurance. This protects you against any claims of errors, negligence or malpractice. This is especially important if you provide advice-based services such as tax preparation or investment advice. Doctors are often mandated to have this type of insurance.
If your startup distributes retail products, product insurance protects the startup against claims of defective products that may injure or harm a member of the public.
If you have employees to whom you issue W-2 forms, you must have worker’s compensation insurance. In some states, you need it even if you have contract workers. Be sure to check the state requirements, as many states impose penalties for noncompliance. Worker’s comp is insurance that will pay medical benefits to employees who are injured on the job, plus other benefits such as wage replacement while the employee is unable to work.
Many startup owners are unsure about what insurance they need. These five types are basic insurance categories that will protect you, your business and your employees and deliver critical peace of mind.
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