5 essential types of business insurance for start-ups
So, you’ve entered the early planning phase of a new start-up business; the ideas are flowing and a launch date is beginning to appear on the distant horizon. The last thing you probably want to think about right now is business insurance.
But actually, it’s one of the most important factors to take into account before embarking on your new venture, because without it – or with inadequate cover, bought in haste – your dream could be over before it’s really got started.
Account Executive David Lowe is here to guide you through the top five essential business insurance policies you’ll need to consider first.
1 Employers’ liability insurance
First and foremost, if you’ve got any employees, then you’ll need employers’ liability insurance.
“This is a statutory requirement, so all employers must have it by law. It’s the most important policy, and it’s the first insurance trigger for a start-up,” says David.
2 Public liability insurance
Public liability insurance, on the other hand, isn’t compulsory – but it’s something that should be seriously considered.
“A lot of start-ups will be developing prototype equipment or products, which may then need to be tested in front of visitors, in public areas or on client premises,” says David.
Public liability insurance provides cover if a client or member of the public is injured as a result of your research and development (R&D) or day-to-day business activities – whether undertaken on or off-site. It’ll also cover damage to third-party property.
3 Contents insurance
Contents insurance is crucial from day one, because it protects all of your research material and prototypes, should disaster strike.
“You’ll no doubt spend a lot of time developing and creating your equipment or products, and if your models, samples and background research were to be lost or damaged, there’s quite a lot of money tied up in getting them reinstated,” David points out. But a contents policy should insure your stock, R&D materials, general tools and equipment against loss or damage.
4 Business interruption insurance
“Business interruption cover follows on from contents insurance,” says David. “When prototypes or equipment have been damaged, there’s going to be a time lag in getting them replaced – but certain costs will still need to be paid in the meantime. For example, you’ll want to hang on to your employees, and so you’ll have to keep paying them while the project is on hold.”
Business interruption insurance covers additional costs that result from such delays, thus enabling you to remain functional until the development process can be resumed.
5 Directors and officers liability insurance
Directors and officers (D&O) insurance may be a requirement for start-ups that are being funded by outside investors. It’s there in case a director or officer makes a mistake in the management of the business – or of the funds they’ve been entrusted with.
“We do see shareholder-against-shareholder actions, when funders aren’t happy with the way their investment has been handled by the business,” says David. “Start-ups can raise quite high values of money when funding their ventures these days – sometimes several millions of pounds – so the investors providing that funding will want some means of protecting themselves. D&O insurance is therefore often a condition of their financial support.”
Now that you’ve got to grips with the key policies, the next question is, how do you go about buying them?
Well, unfortunately, many off-the-shelf insurance policies have been designed for companies with an established product line, rather than start-ups facing the various complexities and liabilities associated with product and intellectual property development. So, while it’s tempting to try to save some money in the early days of your business by buying cheap online policies, it’s far wiser to seek expert advice.
“You should choose an independent insurance broker who understands start-up ventures and the problems they face in early-stage development,” says David. “That way you can relax in the knowledge that your insurer understands exactly what activities you’re involved in – and that your new business is fully insured and protected from the word go.”