Types of Startup Business Insurance: Costs and Providers
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As an entrepreneur, you know how much time, energy and money it takes to turn your business dreams into reality. So, you can also understand the importance of protecting all your hard work. That’s where startup business insurance comes in.
In many cases, you’ll be required to carry certain types of business insurance before you can legally open your doors to customers. However, there are additional types of coverage you may want to look into as well. The upside is that it's a competitive market so you can use that to your advantage to compare costs, services and terms and conditions.
This guide is here to help you do just that. Below, we’ve broken down the most crucial startup business insurance types you’ll need, the top providers to choose from and what the costs look like for each type. It’s important to keep in mind that depending on where your business operates, some states may require certain types of insurance — so while this guide is a good starting point, you should also check with your state and local business agencies to ensure you’re fully compliant.
Types of business insurance for startups
Type of Insurance | What It Covers | Average Cost |
|---|---|---|
Protects employers from lawsuits related to an on-the-job injury; ensure injured employees get care and compensation needed | Typically $0.75 to $3 per month per $100 of payroll | |
Unemployment Insurance | Payment of claims made by former employees to collect unemployment due to layoffs of decrease in work | Varies by state; federal tax rate for most businesses is 0.6% |
Disability Insurance | Provides a portion of an employee's salary if they're unable to work due to illness or injury | 0.25% to 0.5% of payroll |
Protects your building, equipment, tools, inventory, furniture, and personal property, as well as some of your business income if you can't open because of one of the covered losses | $1,000 to $3,000 annually | |
Injuries and accidents on your premises, property damage, non-physical personal injury | $500 to $3,000 | |
A client or other third partys financial losses due to your businesss malpractice, as well as the cost of your legal expenses | $1,000 to $3,000 | |
Helps to replace any income lost for the duration your business remains closed due to that loss | $1,200 annually on average | |
Life insurance policy that is purchased by the company on the life of a key executive; company receives the payout of the policy if key person dies | $1,000 per year to $1,000 per month | |
Covers cost to recover from an attack, but also covers any lawsuits that come from a cyber attack or data breach | $1,501 per year on average | |
Encompasses a few of the insurance types listed above; does not cover professional liability, auto insurance, workers compensation, health and disability insurance, or flood and earthquake insurance | $1,900 per year on average |
With this overview in mind, let’s now discuss each of these business insurance policies in more detail.
Workers' compensation insurance
If you’re hiring employees, you’ll likely be required to carry certain types of insurance. Workers' compensation insurance, or more commonly known as workers' comp, is one of those required policies. This insurance ensures injured workers get the care and compensation they need, as well as protects employers from lawsuits by injured workers.
This type of insurance typically costs $0.75 to $3 per month per $100 of payroll.
Unemployment insurance
While you don’t purchase unemployment insurance from a provider, like you do for most other types of business insurance, it is another required insurance if you have employees. As an employer, you will pay both federal and state unemployment taxes — the rate of which are determined by the number of employees, rate of turnover and time in business.
You'll need to contact your state’s unemployment agency and set up an employer account in order to make payments. These payments guarantee a portion of an employee’s salary after a job loss. To help simplify this process, many payroll software providers include calculating and paying payroll taxes in their offerings.
While the cost of unemployment insurance varies by state, the federal tax rate for most businesses is 0.6%.
Disability insurance
Another type of startup business insurance you may be required to provide if you have employees, disability insurance provides a portion of an employee’s salary if they’re unable to work due to illness or injury. The illness or injury in question does not need to be work-related, which is how disability insurance and workers comp differ.
While not every state requires this type of insurance, it’s worth confirming — and considering offering this peace of mind to your employees, even if it’s not required. Costs can range from 0.25% to 0.5% of payroll.
Commercial property insurance
This insurance also goes by the names business property insurance or commercial real estate insurance. Essentially, it protects your building, equipment, tools, inventory, furniture and personal property. It can also help cover some of your business income if you can’t open because of one of the covered losses. Generally, commercial property insurance costs $1,000 to $3,000 per year.
General liability insurance
As the name suggests, general liability insurance is a great catch-all policy to have to cover things like:
Injuries and accidents on your premises.
Property damage.
Non-physical personal injury.
Within those categories, general liability insurance covers the legal costs, medical costs and repair costs associated. Not only does it cover you and your employees, but this policy also extends to clients, vendors and customers, making it a must-have. Expect to pay $500 to $3,000 per year.
Professional liability insurance
There are some industries that require professional liability insurance, also known as errors and omissions insurance or malpractice insurance. While it’s most often associated with doctors, lawyers and other professional service providers, other industries like accounting, IT, real estate, software development and more may also need this type of policy. And even if it’s not required, if you’re a service-based business, you may benefit from this coverage.
Essentially, professional liability insurance may cover a client or other third party’s financial losses due to your business’s malpractice, as well as the cost of your legal expenses. Costs range from about $1,000 to $3,000 per year.
Business interruption insurance
In order to utilize this insurance, your business must be recovering from one of the many covered losses, like property damage from a fire or other natural disaster. Business interruption insurance helps to replace any income lost for the duration your business remains closed due to that loss.
This insurance isn’t sold on its own but is instead packaged with another type of insurance or as an add-on to another policy. The average annual cost is $1,200.
Key person insurance
A "key person" is usually defined as a member of the business whose death or disability would have a serious negative impact on the business. Key person insurance is a life insurance policy that is purchased by the company on the life of a key executive. The company pays the premiums and is the beneficiary of the policy. In the event of that person’s death, the company receives the payout of the policy. You can expect to pay $1,000 per month to $1,000 per year, depending on how much life insurance you’re purchasing.
Cyber liability insurance
In the event of a cyber attack or a data breach, this insurance policy helps cover financial losses your business suffers as a result. It not only covers the cost to recover from the attack, but also covers any lawsuits that come from a cyber-attack or data breach. The average cost of cyber liability insurance is $1,500 per year, but this number can increase significantly depending on your industry and claims history.
Business owner's policy
A business owner's policy, or BOP, generally encompasses a few of the insurance types listed above. This package option could help you save money as opposed to getting each policy separately. Included in a typical business owner's policy will typically be general liability, commercial property and business interruption insurance.
Business owner's policies do not, however, cover professional liability, auto insurance, workers' compensation, health and disability insurance or flood and earthquake insurance. The average cost is roughly $1,900 per year, but, again, your premium will depend on factors such as your industry, location and size, coverage limits, claims history and more.
Startup business insurance providers
To obtain business insurance for your startup, finding the right provider is key. We’ve rounded up the top business insurance providers that are known for offering the type of insurance you need and at prices that won’t heavily impact your startup costs.
The Hartford
The Hartford specializes in business, auto and home insurance, and one of its most popular products is its business owner's policy. Its BOP is one of the most customizable in the industry, so if you’re looking to combine multiple types of coverage into one policy, The Hartford may be right for you. You can either get a quote online or by contacting an insurance agent in your area.
Types of business coverage
Business owner's policy.
General liability insurance.
Workers' compensation insurance.
Cyber insurance.
Professional liability insurance.
Business interruption insurance.
Hiscox
Hiscox is another leading provider of startup business insurance that provides policies for over 180 different professions, so you’ll be almost sure to find coverage for your business.
Hiscox offers a wide range of products, as well as customizable options based on your industry. Like The Hartford, you can purchase your policy either online or through an agent.
Types of business coverage
General liability.
Professional liability.
Business owner's policy.
Cyber security.
Workers' compensation.
Directors and officers insurance.
State Farm
State Farm is one of the most well-known insurance companies, but many might not think of startup business insurance when they think of it. However, not only is State Farm a top provider in this space, but it also excels when it comes to customer service. And if your startup is a nonprofit, State Farm offers a specialized product for you. Keep in mind, though, you'll need to visit an agent in person or call their office to get a quote.
Types of business coverage
Business owner's policy.
General liability.
Professional liability.
Commercial property.
Workers' compensation.
CNA
Another option for business is insurance is CNA, which provides policies for businesses in industries like construction, manufacturing, technology, health care, professional services and financial institutions, as well as a variety of other small businesses.
Types of business coverage
Business interruption insurance.
Cyber risk solutions.
General liability insurance.
Professional liability insurance.
Workers' compensation.
Embroker
Embroker not only helps startups with their insurance needs, but it also provides support through specialized advisors who can guide you through the insurance process and figure out which policies will be the best for you.
With both proprietary offerings and partnerships with leading insurance carriers, Embroker can connect your business with the coverage you need at the best cost, all of which can be easily done online. Managing your policies can all be done online as well. Additionally, it even offers a startup insurance package specifically for new businesses.
Types of business coverage
Business owner's policy.
Cyber liability insurance.
Key person insurance.
Workers' compensation.
Legal professional liability.
Insureon
Similar to Embroker, Insureon is a business insurance marketplace that connects you to many of the key policies that we have outlined above. You can use Insureon to compare quotes from many different carriers, so you know you're getting the best price. If you need help along the way, you can reach out to one of its licensed reps to walk you through the process.
Types of business coverage
General liability insurance.
Professional liability insurance.
Business owner's policy.
Workers' compensation.
Cyber liability insurance.
Commercial property insurance.
The bottom line
Finding the right business insurance for startups can be confusing, costly and take up a lot of your time. However, it’s also a necessary to-do before you can officially launch your business. Without the proper insurance policies in place, just one event — from a customer slipping in your store to a cybersecurity hack — could put you out of business.
Hopefully, this resource gives you the information you need to know which types of insurance are best for your business, as well as which providers can help get your startup up and running without the risk of extreme loss. You’ll also want to check with your state to determine what their requirements are, and it doesn’t hurt to consult a licensed insurance professional or business attorney to make sure you’re protecting your business in every way possible.
This article originally appeared on JustBusiness, a subsidiary of NerdWallet.
