How Much will Insurance Cost for Your Startup? (Calculator)
Everything you need to know about insurance costs for Startups
Startups are particularly vulnerable and need robust protection from lawsuits because just one catastrophic event could be more than enough to put their business out of business.
Startups face serious odds — about 20% of businesses fail in their first year, and around 60% will go bust within their first three years. However, knowing that you need insurance and knowing what insurance you need are two different things. Especially since startups grow so quickly, finding and budgeting for insurance can be a complicated task.
One way to figure out what insurance might cost is to identify a startup similar to yours in size and type and find out how much their insurance costs. To help you better understand what type of insurance your startup will need and what it might cost, we’ve leveraged our data on startup insurance to create a calculator you can use to find insurance costs for similar startups. Read through our guide or jump to the calculator below.
What Type of Insurance Do I Need?
The first step is to determine what insurance your startup will need at different stages of growth. There are four main types of insurance that you will likely need:
Errors & Omissions Insurance (E&O)
Companies that provide services based on professional expertise can be held liable if the information or services they provide include mistakes or experience technical errors that cause damage to the client. Technology Errors & Omissions Insurance protects against claims that arise from these mistakes. E&O Insurance can also include Cyber Insurance, which protects against claims caused by a security breach or mishandling of client data.
Directors & Officers Insurance (D&O)
Once it’s time to start assembling your startup’s Board of Directors, you should add a Directors & Officers Insurance policy to your package. As the name suggests, this policy protects directors and officers if your startup is sued and any board members or company leaders are named in the lawsuit. This type of protection is essential to your startup since it will cover settlement costs and legal expenses. You’ll also find that few people are willing to join your board unless you have a D&O policy in place.
Commercial General Liability & Property (CGL + Contents)
Once it’s time to lease an office, you will have 'trips and fall' exposure as well as fire, damage and theft exposure for everything you own inside the office. Starting with a lease, your landlord will more than likely require you to carry a minimum of $2,000,000 commercial general liability. This covers the landlord against your negligence causing bodily injury as well as damage to the space itself. CGL and Property together are also referred to as a Business Owner's Policy or 'BOP'
Employment Practices Liability Insurance
Finally, Employment Practices Liability Insurance will be necessary once your startup starts hiring employees. This policy covers claims from within the startup pertaining to workplace issues like discrimination, wrongful termination, failure to promote, sexual harassment, etc.
Depending on your industry and company type, you may also want to consider additional policies like Workers Compensation Insurance, Commercial Crime Insurance, Fiduciary Liability Insurance, and more. However, E&O, D&O, Office Liability & Contents & EPL are the four basic insurance policies that all startups will need.
How Much Will My Insurance Cost?
Budgeting for insurance is important but can be confusing if your company is going through a growth spurt. Your insurance costs will likely change frequently in your startup’s early stages, but you can predict when these changes will occur and how much each change will cost.
The cost of your insurance depends on:
- Which policies you need
- How many people are covered
- How much funding you have
- Your estimated annual revenue
Using cost calculations for the many different types and sizes of startups we’ve insured in the past, we’ve created a calculator that can help you estimate what your insurance might cost based on costs for similar startups. If you need a more specific estimate, you can get a quote based on your particular startup’s needs.
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Tips for Updating Insurance as Your Startup Grows
Insurance policies are typically reassessed and adjusted each year when it’s time to renew. However, if your startup is growing quickly, you’ll need to be proactive about updating your insurance as your company expands.
The three most relevant benchmarks for estimating insurance costs are operations (what you do), annual revenue, and employees. It would be best if you looked to consult with your provider about adjusting your coverage whenever you hit a new milestone in one or more of these areas.
While your premiums will likely increase as you grow, keep in mind that policy renewals are also an opportunity to renegotiate your rates or shop around for a new provider.
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