Everyone needs someone that you can ask dumb questions and get good answers. One of those people for me is Ryan Waite at Neckerman Insurance. Whenever I have (or a client has) an insurance question, I know that I can call over there and get a good, full, and not dumb answer in a timely manner. I very often get questions from small and start-up businesses about when to get insurance and what kind. Luckily, Ryan is also good at writing answers! Therefore, today we have a guest post from Ryan. Applause, please!
I own a small business. Do I really need to get insurance?
In short, YES.
Oh, you’d like more of an explanation? I can do that. Just sit down, relax, and grab your favorite scent of smelling salts. You’ll likely need them!
This is a tough article to keep short because insurance is different for every business. Every tech startup is different than the next, every landscaping contractor has different insurance needs and every retail store has different risks than their neighboring retail store. That’s why it is in your best interest to consult with an insurance professional about your business insurance program. Your agent will give you peace of mind that you and your livelihood are protected. Below I have listed the types of insurance a small business may need to get you started. In addition, here is a flowchart many have found useful to work their way through these: Insurance for your startup – RW
Do you have any employees? If so, you are required by state law to carry a Workers’ Compensation policy. Even if you do not have employees, you may still need a Workers’ Compensation policy. Examples of these situations could be if you subcontract work for others, or if you are hired by a company that requires you carry Workers’ Compensation in the contract you sign with them.
This is the most basic coverage you can get but it doesn’t always mean it’s the least expensive. The premium of a General Liability policy typically depends on your type of product or service and your estimated annual sales. You may be required to carry a General Liability policy by your landlord if you lease commercial space, by a contract with a client, or your investors/advisors/attorneys/common sense friends.
If you need Property coverage for a building, furniture, equipment, inventory, computers & electronics, etc., you might as well try to bundle the Property coverage with the General Liability and get a Businessowners Policy. There are often numerous other coverages included that you may need, so it’s more broad than just having a General Liability policy and a separate Property insurance policy. Depending on your industry and your sales, you can get a Businessowners Policy (BOP) for as little as $500/year.
If you are manufacturing or selling a product, food, or medicine to the public, Product Liability is important. Depending on your industry, this might be included in your General Liability policy but it also may be specifically excluded. It’s important to find this information out from your insurance professional.
Directors & Officers Liability
Do you have a Board of advisors or investors? They may require you to purchase a Directors & Officers (D&O) Liability policy to protect their own behinds. This can be a hefty premium for startups (unless you’re a non-profit) due to the fact that the premium is based a lot on financials. I would estimate this to cost $3,000-$6,000 but it could be more or less depending on the coverage inclusions/exclusions as well as financials. A typical business with good financials could be a much lower premium. Again, your local insurance professional will be able to offer advice.
…And there’s more
Feel free to stop reading and call your local insurance professional. They won’t overwhelm you with all of these coverages and will simply recommend what you need as you get started. Depending on your industry, you may also need to discuss these coverages with your insurance pro:
- Business Interruption Insurance
- Key Person Life or Disability Insurance
- Auto Insurance
- Umbrella Liability
- Data Breach / Cyber Liability
- Employment Practices Liability Insurance (EPLI)
- Equipment Breakdown
- Errors & Omissions Liability or Professional Liability
- Inland Marine
- Product Recall Insurance
If you don’t have a go-to insurance professional for startups in your area, feel free to reach out to me at [email protected] or book a time to chat with me here. If you’re a tech or biotech startup in Wisconsin, you can also check out Atlas Providers to search for service providers in many industries that cater their services to startups.
Best of luck to you, Mr. or Mrs. Entrepreneur!