tech-company, canada, sole-proprietorship, liability-insuranceHow much liability insurance would be a good idea to have given these factors:
So with those factors what would be the minimum recommended amount of liability insurance and what would you consider to be a better amount?
For a startup, if you have no customers, you probably need the cash more than the insurance. Once you start having customers (and in order to get some customers such as public institutions and government organizations) you will likely need, at minimum, Errors and Omissions (E&O) insurance. For a startup a small policy will work. I’ve found that a typically standard $1 million per claim and $2 million aggregate E&O and general liability insurance will meet the minimum requirements of some of the organizations I’ve consulted with and sold to, and costs well under $1,000 per year. Insurance availability and cost will vary greatly depending on your location and business, but this should help you understand the ballpark figures you might see.
Today’s online businesses hold a lot more sensitive data, and there have been many lawsuits recently concerning data breaches and other similar problems. While you could probably handle many good customers before running into this issue, you should consider getting additional insurance that covers your specific exposure to liability.
Data breach insurance is available, for instance.
These primarily protect you from lawsuits brought by customers and other external to your company. There are a number of risks coming from inside your company as it grows. When it’s just you and a dozen others, working for little actual cash, if the company fails none of you are particularly hurt. If a computer dies, you make due with extra personnel equipment until the company is cash positive. Everyone’s using their own equipment, so major loss of a building or equipment is unlikely - you probably carry your laptop home with you. If something major does happen you have friends, family, and the local library to fall back on while you sort things out.
Some time in the future you’ll hit a tipping point where internal problems expose you to significant risk. You have too many employees and too many deadlines, and if something breaks you have to be able to recover, but it won’t work like it used to. You’ll need outside help.
Many types of insurance cover your equipment, office, employees, and a variety of problems you might face. If you have a few employees absolutely critical to your work you might even choose to purchase “key man” life insurance so your business doesn’t fail when they die. Other insurances include disability insurance, health insurance, worker’s compensation insurance, etc.
In a lean mean 2-5 person startup, you might not need any insurance. As you gain customers you should consider E&O insurance. As you gain employees and incorporate you need many types of insurance.
All content is licensed under CC BY-SA 3.0.