software, startup-costs, insurance, liability-insuranceI am thinking about starting my own app business and so I talked to my insurance agent if I needed anything extra. He scared the bejeezus out of me. If I want to sell apps in Europe or any other part of the word besides North-America, I need an insurance of around 500euros/year. Seems reasonable.
But if I want to sell apps in North-America the price goes up to several thousands of euros and I am on the hook for the first 20.000euros of damages out of my own pocket anyway. But North-America would be my biggest market, so not something to ignore.
And the app store is filled with small, often free, apps. I can’t image all of these developers are paying thousands of euros in insurance. Do these people have an insurance? Do I need one for selling mainly work-orientated apps through the app store? I will be using the standard Apple license agreement if that makes any difference.
Thanks
Insurance is by it’s very definition something you use to compensate for unplanned contingencies. There are occasions when an outside entity can compel you to have insurance. If you have a large debt like a Mortgage, you may be required to have life insurance if you don’t have sufficient collateral to offset the debt. In United States, most states require all drivers to have auto insurance if you want to own an automobile.
Now with regards to applications, I don’t think there is anything that is going to compel you to have insurance. If you are looking to mitigate your liability and protect yourself from lawsuits, there are generally two approaches. You can wrap your application development with a corporate entity (In America, the most common approach is a Limited Liability Company). If you ever get sued frivolously for giant amounts of money you basically liquidate the entity and move on. If you expect to get smaller more regular lawsuits then insurance is probably the way to go. You need to weather several smaller storms instead of one giant storm. At that point, you have to decide when to engage that service. I wouldn’t engage in that service until you have something to protect and you have some liability.
My first thought would be to consult your attorney before moving forward. The insurance agent has a natural bias (towards selling more insurance), whereas an attorney should be able to evaluate liability and help you figure out a balanced approach. And with things insurance, there’s probably never going to be one right answer - you’ve got to balance the risk.
To your question more specifically, the previous answer to wrap your entity in a company is spot on - this will provide a firewall between your company’s liability and your personal finances. Finally, there are insurance providers that will sell liability/malpractice insurance on software products, but this is a fairly esoteric market and does tend to be quite expensive (source - my business insurance agent who cautioned me away from getting this insurance).
You might think of a test - if the software you’re building is going to cause real liability (e.g. making medical software) - you’re much more likely to want/need insurance than if you’re making a simple game. But things can get quite tricky - for example if your game collects PII and somehow you violate user agreements (or suffer a data breach), you could be in a world of hurt. Long story short - the answer is heavily contextual. By talking to people - you’ll get a better sense of the dimensionality of the problem, but there’s still going to be a judgment call.
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