This edition of “Ask the Expert” is brought to you by Vouch Insurance. We asked Amanda Sandoval, their Insurance Advisor to share her thoughts on what founders need to know about startup business insurance. Read on for her insights.
Q. Why is business insurance a must-have for startups?
Think of startup business insurance as an investment in your company, designed to cover the financial cost of unforeseen liabilities and business losses. Business insurance helps protect your board, property, customers, you, and ultimately, your company if you face a lawsuits.
Business insurance helps transfer the financial risks of running a business from you and your company to another entity. Should something go wrong, you can file a claim, and, if covered, your insurance provider takes it from there. So what are five things founders need to know about business insurance? Here are five commonly asked questions and answers about what female founders need to know about insurance for startups.
Q. When does a startup need business insurance?
Here are the moments that founders most often need insurance in place to take your company to the next level. You have:
- Raised a round of funding
- Signed your first customer contract
- Hired your first employee
- Signed your first lease or financial agreement
Q. Where should a founder start when it comes to investing in their first insurance policy?
General Liability Insurance is a good place to start. This policy pays out for certain types of injuries or damages that may occur at your office, and it can also absorb the cost of defending against or settling those claims. It’s important to note that Business Property Insurance is used to replace damaged or stolen office equipment. For example, if your employee spilled coffee on their laptop, Business Property Insurance can help you to replace it.
Q. What kind of business insurance does an early stage founder need in place when raising a round?
Board members and investors will want to make sure their assets are protected in case you, a member of your board, or your company are sued in a claim of company mismanagement or claims for non-compliance to regulatory guidelines. However, mismanagement is not always the driver of D&O lawsuits, many come from regulatory non-compliance.
Directors & Officers (D&O) Insurance provides legal defense against covered claims. Without D&O in place, investors may be reluctant to invest in your company because their assets are on the line should you face a lawsuit.
Q. What business insurance is required by state law?
While insurance requirements vary state to state, all 50 states require you to have Workers’ Compensation insurance in place to pay for on-the-job injuries. In some states, this requirement goes into effect if you have 10 employees or more. In others, there are different employee thresholds. However, Worker’s Compensation insurance only protects you from employees suffering from bodily injuries. What happens if an employee makes a claim about wrongful termination or wage disputes?
You should also consider an Employment Practices Liability policy to fund your defense against legal action by employees. Additionally, if you are offering benefits, like a 401(k), it’s helpful to have Fiduciary Liability Insurance in place in case an employee sues because they believe you and the company mishandled those funds.
Q. With the rise in ransomware and cybercrimes, should founders invest in cyber insurance for their startup?
According to NBC, “A report from McAfee estimated that global losses from cybercrime topped $1 trillion in 2020.” Today, the question is not should I invest in cyber insurance, but can your startup afford not to? With the threat of cybercrimes growing, the risks of not having this insurance go up as well, and a cyberattack can be a business-ending event.
Additionally, many companies and investors also require that you have some kind of cyber insurance policy in place before they’ll partner with you. The decision whether or not to invest in this type of insurance really comes down to how at risk your company is and how high your risk tolerance is.
Investing in the right kind of business insurance is an effective form of risk management for your startup. When you have startup business insurance in place, this can build customer trust and investor confidence, and make it easier to partner with the right companies. To learn more about startup business insurance, read more here. You can also register to attend the Business Insurance 101 Roundtable here.
About Amanda Sandoval:
Amanda Sandoval-Carvajal is a Senior Insurance Advisor at Vouch with over a decade of experience in assisting both seasoned businesses and startups with the guidance needed to excel at their current stage. She currently specializes in Venture Backed and Tech Based Startups with a professional interest in FinTech and SaaS companies. As a first generation Latina, she graduated from Purdue University with a Bachelor’s Degree in Radio/ TV Broadcasting and Communications, while working in the Insurance Industry. Living in the world of brokers and legacy carriers all her career, Amanda sees the value in Vouch, the powerful disruption it has made in the industry, and is truly passionate about sharing this with female entrepreneurs. Her lifelong personal passion for contributing to her local Latino Community in Northwest Indiana has led her to regularly participate in events that promote her culture as a Mariachi Music performer.
