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Insurance for Startups: What You Actually Need
Insurance protects your company from catastrophic risks. Here's what coverage makes sense at different stages.
Insurance feels like a big-company concern, but certain coverage is essential even for early startups. The right insurance protects against risks that could kill your company.
Here’s what you actually need and when.
The Insurance You Need
Directors & Officers (D&O) Insurance
What it covers: Protects directors and officers from personal liability for decisions made in their roles.
Why you need it: Without D&O, investors and board members face personal risk. Most institutional investors require it before investing.
When to get it: Before raising institutional money (Seed, Series A).
Cost: $2,000-10,000/year for early-stage companies.
What to look for:
•
Coverage for employment practices claims
•
Coverage for regulatory investigations
•
Adequate limits ($1M minimum, $2-5M common)
Employment Practices Liability (EPLI)
What it covers: Claims from employees—wrongful termination, discrimination, harassment, wage disputes.
Why you need it: Employee lawsuits can be extremely expensive. Even frivolous claims require defense.
When to get it: When you have employees.
Cost: Often bundled with D&O. Standalone: $1,000-5,000/year.
Note: EPLI doesn’t prevent lawsuits—it pays for defense and settlements.
General Liability
What it covers: Third-party claims for bodily injury, property damage, personal injury (libel, slander).
Why you need it: If someone visits your office and gets hurt, or your product damages property.
When to get it: From the start if you have a physical presence or interact with customers in person.
Cost: $400-1,500/year for most startups.
Professional Liability / Errors & Omissions (E&O)
What it covers: Claims arising from professional services or advice you provide.
Why you need it: If your software causes a customer’s data loss or your advice harms them.
When to get it: When you have paying customers, especially B2B.
Cost: $1,000-5,000/year depending on coverage and industry.
Common for: Consultants, agencies, software companies, any professional services.
Cyber Liability / Data Breach Insurance
What it covers: Data breaches, cyber attacks, privacy violations.
Why you need it: Breaches are expensive—notification costs, forensics, legal fees, regulatory fines.
When to get it: When you handle customer data (so, basically always).
Cost: $1,000-5,000/year for startups.
What to look for:
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First-party coverage (your costs)
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Third-party coverage (customer claims)
•
Regulatory coverage (fines, penalties)
Workers’ Compensation
What it covers: Employee injuries and illness from work.
Why you need it: Required by law in most states once you have employees.
When to get it: When you hire your first employee.
Cost: Varies by state and industry. Typically $0.50-2.00 per $100 of payroll for office workers.
Note: Some states require coverage from the state fund.
Insurance by Stage
Pre-Revenue / Solo Founder
Need:
•
General liability (if meeting with people)
Can wait:
•
Everything else
At this stage, focus on building. Don’t over-insure.
Seed Stage / Small Team
Need:
•
D&O (before or right after fundraising)
•
Workers’ compensation (once you have employees)
•
General liability
Should consider:
•
Cyber liability (if handling data)
•
EPLI (bundled with D&O)
Series A / Growing Team
Need:
•
D&O (higher limits)
•
EPLI
•
Workers’ comp
•
General liability
•
Cyber liability
•
E&O (if B2B)
Should consider:
•
Key person insurance
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Business interruption
Series B+ / Scaling
Need:
•
All of the above with appropriate limits
•
International coverage if operating globally
•
Specialized coverage for your industry
At this stage, work with a broker who understands your business.
Working with Insurance Brokers
Why Use a Broker
Brokers:
•
Understand startup needs
•
Shop multiple carriers
•
Bundle policies for savings
•
Handle claims
Startup-Focused Brokers
Embroker: Tech-focused, popular with startups.
Vouch: Startup-specific coverage, easy online.
Coalition: Cyber-focused with broader coverage.
Founders Shield: Tech and startup specialists.
What to Discuss with Brokers
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Your current stage and funding
•
Number of employees
•
Type of data you handle
•
Customer contracts (do they require coverage?)
•
Anticipated growth
Brokers should tailor recommendations to your situation.
Understanding Policies
Key Terms
Premium: What you pay for coverage.
Deductible: What you pay before insurance kicks in.
Limit: Maximum the policy will pay.
Exclusions: What’s not covered.
Retroactive date: Claims from before this date aren’t covered.
Reading Policies
Always read:
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Coverage summary
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Exclusions
•
Deductibles and limits
•
Claim procedures
Ask your broker to explain anything unclear.
When Customers Require Insurance
Enterprise customers often require:
•
General liability: $1M per occurrence
•
Professional liability: $1M+
•
Cyber liability: $1M+
•
Certificate of insurance
Having coverage in place speeds enterprise sales. Lack of coverage can kill deals.
Filing Claims
If something happens:
1.
Notify your broker immediately. Timely notification is often required.
2.
Document everything. Keep records of the incident.
3.
Don’t admit fault. Let the insurer handle it.
4.
Cooperate with the investigation. Provide requested information.
Claims handling is why you have a broker—use them.
Common Mistakes
No D&O before fundraising: Investors may require it. Getting it last minute is hard.
Underinsuring for your stage: Growing fast? Your coverage should grow too.
Not reading exclusions: Assuming you’re covered when you’re not.
Letting policies lapse: Gaps in coverage can be problematic for claims during those periods.
Ignoring cyber: Data breaches happen to small companies too.
DIY without understanding: Insurance is complex. Use professionals.
Key Takeaways
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D&O insurance is essential before raising institutional money
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Workers’ comp is required by law once you have employees
•
Cyber liability is important if you handle any customer data
•
Use a startup-focused broker (Embroker, Vouch, Founders Shield)
•
Review and increase coverage as you grow
•
Enterprise customers often require proof of insurance
•
Keep policies current—gaps in coverage create problems
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