8 Types of Insurance to Mitigate Startup Risks

Mitigate Startup Risks

All companies face risks, and startups are no exception. As you seek financing from third parties, remember that once financing is obtained, the resources of those outside investors now face the same risks as your personal resources.

One way for entrepreneurs to mitigate startup risks is through insurance. Here are 8 types of insurance that entrepreneurs should consider as they develop and grow their startup.

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  1. Personal Property Insurance

    Protects the policy holder against the financial risk of damage to or loss of personal property due to fire, theft and certain weather perils.

  2. Real Estate Title Insurance

    Protects the policy holder against financial loss due to defects in a title to real property and from the un-enforceability or invalidity of mortgage loans. Its purpose is to protect the property owner or lender from losses due to title defects, liens or other similar issues.

  3. General Liability Insurance

    Protects the policy holder from liabilities which may occur from the imposition of lawsuits or other similar claims. In general, it provides protection against third party claims, excluding damages caused intentionally or liabilities which are contractual in nature.

  4. Product Liability Insurance

    Similar to General Liability Insurance, Product Liability Insurance protects the policy holder against financial loss of property due to issues arising from or related to the property.

  5. Directors and Officers Insurance (D&O)

    Liability insurance that indemnifies the insured director or officer of a company or the company itself for losses or costs of legal defense suffered as a result of legal action brought against the parties for alleged wrongful acts.

  6. Errors and Omissions Insurance (E&O)

    Liability insurance that protects professionals, consultants and companies engaged in providing professional advice as a service against the financial losses which may occur in the need to defend against negligence claims made by clients and resulting damages which may be awarded as a result of civil lawsuits. Specifically, the coverage protects against financial loss caused by errors or omissions in the service provided.

  7. Workers Compensation Insurance

    Protects employees by providing wage replacement and medical benefits to employees injured in the course of employment.

  8. Key Man Insurance

    Business insurance that provides financial compensation to the business as protection against financial losses that may arise in the event of the death or extended incapacity of a critical member of the business.

4 Reasons to Consider Key Man Insurance

Based on the stage of the startup, some coverages may not be applicable or appropriate. The entrepreneur may choose other alternatives to address the risk involved, or not to address it at all. Ultimately, the investor will consider the entrepreneur’s approach and judge if they are properly mitigating startup risks. This assessment impacts their view of the entrepreneur’s judgement and approach to issues. These conclusions will likely impact the investors’ ultimate investment decision.

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NOTE: This article may discuss issues for which legal advice should be considered prior to a decision or agreement with a third party.  Note that the author is not an attorney, and FundingSage is not a law firm.  FundingSage’s employees and affiliates do not provide legal advice.  We recommend you seek the services of an attorney if legal advice is required.

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Tony Lettich

Tony Lettich has previous Business Analysis, Business Valuation, M&A, and Venture Capital experience and currently serves as the Managing Director of The Angel Roundtable and a Partner in Sheehan, Lettich M&A Advisory. He is also a co-founder of FundingSage, which provides valuable information, tools and resources to entrepreneurs seeking to launch and build startups.