Insurance for startups: A guide to protecting your business

Starting your own business is an exciting time, but it also comes with risk. That’s why it’s crucial to ensure you have the right type of business insurance in place to protect your business if something goes wrong.

Having adequate cover means you’re protected from financial loss and won’t be forced to close your business before it’s even got off the ground.

Do I need insurance for my startup business? 

Legally, you only need business insurance if you hire one or more employees or have a company vehicle. But it’s worth considering other insurance types to protect your business against unexpected problems.  

What’s more, depending on the business you run, some regulators and industry bodies might insist you have certain types of business insurance.

Likewise, certain clients might also insist you have cover before agreeing to do business with you. 

Why is it important to have insurance cover? 

Buying business insurance gives you peace of mind that you have financial protection if something goes wrong. 

You can take out business insurance for almost any kind of risk – whether that’s protecting your business premises against fire or floods, covering yourself against legal costs if you accidentally cause injury to a third party, or protecting your business against cyberattacks.

You might feel that the upfront costs of business insurance are a pain, but without the right level of cover, you could be left ruinously out of pocket.

Hefty compensation settlements and legal costs can run into hundreds of thousands of pounds, which could potentially bankrupt your business before you’ve even started. 

Taking out insurance also shows potential clients or investors that you’re aware of the risks and have taken steps to protect your new company from them. This can make your business more attractive. 

What types of insurance should startups consider? 

Some of the business insurance types you should consider as a startup include:

Employers’ liability insurance

Employers’ liability insurance is a legal requirement if you hire staff. It protects you against claims from employees if they suffer an injury, illness or loss because of the work they do for you. It can cover both legal costs and compensation payments. 

Public liability insurance

Public liability insurance covers you if a member of the public, customer or client sues you because of an injury or damage to their property caused by your business activities.

For example, if your business sign falls down and injures someone, a public liability policy can cover legal costs and compensation payments. 

Professional indemnity insurance

Professional indemnity insurance protects you if a customer makes a legal claim for financial loss incurred due to advice or services you provided.

For example, if you gave a client incorrect legal advice as a solicitor, professional indemnity insurance can help cover the cost of claims made against you.

Read more:

• Differences between public liability and professional indemnity insurance

• Differences between public and employers’ liability insurance 

Product liability insurance

If you design, make or sell products that causes injury or damage, product liability insurance covers you against any resulting compensation claims and legal fees. 

Motor insurance

If you need to use a van or car for your business, perhaps to transport your equipment or visit clients, by law, you must have at least third-party van insurance or business car insurance. 

Third-party-fire-and-theft insurance also covers you if your vehicle is burned or stolen, while comprehensive insurance offers the greatest level of coverage. 

Cyber insurance

Cyberattacks are on the rise, making cyber insurance increasingly important for many businesses. It protects your business against damage resulting from cyberattacks, data breaches and online fraud. 

Business interruption insurance

Business interruption insurance protects your business against financial loss if you need to stop trading for a while due to events beyond your control.

For example, if a flood damages your office space, business interruption insurance can compensate you for lost revenue. This is particularly important when you’re just starting out.

Commercial property insurance

If you own your business premises, you need buildings insurance to cover you against damage to the property. If you rent, the owner of the building is responsible for taking out buildings insurance, but the owner may pass this cost on to you.

It’s also important to take out commercial contents insurance to protect your stock, equipment and tools. 

What insurance does my startup need?

To help you decide which types of business insurance you need, consider the risks that your startup faces.

In the early stages of your business, you might only need one or two different types of business insurance, but as your business grows, you should re-evaluate whether you need to buy additional cover. 

For example, you might start off working alone but later hire someone to help you – in which case you need employers’ liability insurance.

Or you might upgrade your work equipment as time goes on and start to rely more on digital transactions – in which case you should consider upgrading your contents and cyber insurance. 

Read more: What is business insurance? 

When should I get startup insurance?

It’s a good idea to get startup insurance before you’ve registered your business. Your business can face risks even before you’ve started trading, such as stolen equipment or property damage.

Taking out cover as soon as possible means you’re covered no matter what.

How much does startup insurance cost?

The cost of startup insurance depends on a range of factors including:

• The size of your business

• The nature of your business

• The type and level of cover

Insurers calculate premiums based on the risk of a claim. For example, if you run a small copywriting business from home, your risk level is relatively low compared to a business operating machinery in a factory. As a result, your business’s premiums would be cheaper. 

Selecting a higher level of cover gives you more protection but also means you pay more. The key to finding the right level of coverage at the best price is to shop around and compare a range of quotes.