Why Should Startups Purchase Business Insurance?
Let’s talk about the reality at the beginning. The beginning of startups is fraught with challenges and roadblocks. Apart from teething issues, startups also have to look into their future and plan for uncertainties and risks. Risks can be insured with business insurance. But for startups, the world of insurance, too, is an ordeal.
Incomplete information, conflicting advice by different insurance providers, finding a competent insurance broker for insightful advice, and the time-consuming process of exploring business insurance options – these are just a few of the insurance-related issues that most startups might face. But even before startup founders think about insurance problems, they have other startup problems to deal with: cash crunch, limited people resources and a severe time crunch. In the process of dealing with these business-related issues, insurance is almost always, way down in the list of startups’ to-do lists.
Startups’ failure to prioritise business insurance can cost them a lot. Imagine a key employee of an already small team gets bedridden due to an accident or the company faces a legal lawsuit from a client due to the negligence of one of the junior employees? Or what if a fresh batch of products sold by a startup turns out to be defective and has to be called back? These are just a few hypothetical risk scenarios. But anything can happen, at any time. Even before a business starts operating.
Here’s why startups need business insurance.
The office premises, machinery and equipment, directors, employees, inventory and data – these are all a part of most startups. And all of these are vulnerable to unforeseen risks. Startups and small businesses may not be able to get over huge financial losses or expenses that arise due to risks. And if startup founders and directors think that only large corporations are vulnerable to losses, they are completely wrong. Even a small mishap or a legal claim from a third party could mean huge legal expenses that could derail a small business.
There are a number of critical risks that startups face. Let’s look at some of the most common risks for startups.
Most of the insurances purchased by startups today are due to a contractual obligation from a new client. Startup founders and owners fail to understand the risks related to their business. Unfortunately, they consider insurance as an unnecessary expense. A look at some of the basic types of insurance for startups would help in understanding the importance of each aspect of a startup business.
When it comes to business insurance, things get a little complicated, unlike a personal property, health or vehicular insurance. A business includes several aspects that come together – employees, assets, office space, office equipment, machinery, data, inventory, intellectual property and more. All these need to be insured to protect businesses against paying damages in case of a mishap. Insurance brokers and companies that specialise in startups can provide effective solutions to mitigate risks.
Apart from property, business and self, startup owners and directors must understand the responsibilities and liabilities that come with running a business. Startups must have insurances that protect key stakeholders and insurance that provide them protection from stakeholders such as employees, vendors, customers, clients, investors and third parties that startups associate with.
Commercial General Liability Insurance (CGL) protects an enterprise by providing coverage for any third party liabilities towards bodily injuries and property damage, if startups are made legally liable to pay.
It is obvious, if a startup business has key insurances in place, it would enhance the company’s reputation and credibility. Customers, clients, and investors would have more trust in such a company. New clients would be assured that they would be compensated in case any issues arise or they have a fallout. Confidence and trust in clients can even lead to higher revenue.
A startup’s risk management plan impacts investors decisions to a great extent. Investors do take risks by investing in startups but always look for startups that have planned for risks. Startups that have thought over their risk management plans and secured their business with insurance would definitely seem more legit and serious compared to the ones that haven’t been insured. Having key insurances in place even increases the chances of investors continued support and further investments in the company. Insurance is an assurance to the investors that their money will not sink with the different risks that a startup might face.
Great talent is an essential for any startup. Startups must ensure that they take care of their employees. Employers could face risks related to employees such as a lawsuit filed by an employee in situations of negligence or discrimination or biases. To mitigate the losses or expenses arising out of such lawsuits, companies must invest in insurance. These are some of the ways in which a business is liable to its employees’ protection in times of risks.