Does my startup need insurance?
Takeaway: Yes, absolutely; securing the right insurance policies is a fundamental operational requirement to protect your company from catastrophic liability, build trust with partners, and fulfill your duties as a responsible employer.
For an early-stage founder focused on building a product and conserving cash, buying insurance can feel like an unnecessary expense. This is a dangerous and short-sighted view. Insurance is not a luxury; it is a critical piece of your company's risk management infrastructure. A single lawsuit, a data breach, or a workplace accident can generate liabilities far greater than the value of your entire company, putting your business and even your personal assets at risk.
Securing a baseline set of insurance policies is a non-negotiable step for any serious startup. It is a requirement for signing major contracts, a prerequisite for hiring employees, and a hallmark of a mature and well-managed organization.
The Core Policies Every Startup Needs
While your specific needs will evolve, nearly every startup should have these four key policies in place from the early stages:
General Liability Insurance: This is the foundational business policy. It protects your company against claims of bodily injury or property damage that occur on your premises or as a result of your operations. For example, if a visitor slips and falls in your office, this is the policy that would respond.
Workers' Compensation Insurance: The moment you hire your first W-2 employee, you are legally required by state law to have workers' compensation insurance. This policy provides benefits to employees who are injured on the job, covering their medical expenses and lost wages. Failure to have this coverage is a serious legal violation.
Errors & Omissions (E&O) Insurance: Also known as Professional Liability insurance, E&O protects your company against claims that your service or product failed to perform as promised, causing a financial loss to your customer. For a SaaS company, this is critical coverage in the event your software has a bug that causes a major business disruption for one of your clients.
Cyber Liability Insurance: In an era of constant data breaches and ransomware attacks, this has become an essential policy. It covers the costs associated with a data breach, which can be immense. This includes the costs of forensic investigation, notifying affected customers, providing credit monitoring services, and any resulting regulatory fines or legal settlements.
Insurance for Your Leadership: D&O
As you form a board of directors and raise outside capital, another critical policy comes into play:
Directors & Officers (D&O) Insurance: This policy protects the personal assets of your board members and executives in the event they are sued for alleged wrongful acts taken in their capacity as leaders of the company. No experienced independent director will join your board without a D&O policy in place.
Insurance is the financial backstop that allows your company to take risks and innovate. It is a significant expense, but the cost of being uninsured in a crisis is infinitely greater.
Disclaimer: This post is for general informational purposes only and does not constitute legal, tax, or financial advice. Reading or relying on this content does not create an attorney–client relationship. Every startup’s situation is unique, and you should consult qualified legal or tax professionals before making decisions that may affect your business.