By Linda Rosencrance, Insureon Contributor
Even though the tech startup economy is rich with opportunity, it also brings plenty of risks, including data breaches and lawsuits. If you’re like most owners of IT startups, worrying about the costs associated with those risks almost certainly keeps you up at night.
That’s where technology startup insurance for IT businesses and consultants can help.
Technology insurance for IT startups covers the unique risks that small businesses in the tech industry face every day. Data breaches, software errors, and malfunctioning products can lead to expensive, time-consuming lawsuits. If you’re an IT consultant, a simple mistake or judgment call that negatively impacts a client could result in costly legal action against your business.
If you don’t have the right startup insurance in place, you could be exposing your tech company to unnecessary risk – and that doesn’t bode well for your long-term financial health. New tech companies should consider a range of policies and compare quotes for startup insurance to cover the different risks of the business.
Start with general liability insurance
The first policy you should consider when you start an IT company is general liability insurance. This protects you against liability from third-party claims, including bodily injuries, property damage, and marketing missteps, such as copyright infringement.
General liability coverage may also pay for the cost of defending your tech business in court, including attorney fees and settlement or judgment expenses, up to the policy limits if the claim is covered.
If you plan to rent commercial office space, you may need this coverage to sign a lease or open your business to the public.
Don’t forget commercial property insurance
Whether you own an IT services business or you design websites, you can’t run your business without your equipment and supplies. Prepare for unexpected events with commercial property insurance.
As a small tech startup, you likely don’t have large amounts of cash on hand to respond to losses caused by burglary, vandalism, fire, or weather events. Commercial property insurance can provide financial assistance if any of these events affect your small IT business.
A startup that is in a low-risk industry and meets other specific criteria may also be eligible for a business owner's policy (BOP), which bundles general liability and property insurance into one package, typically at a discounted rate.
Consider cyber liability and errors and omissions insurance
Cyber liability insurance protects your IT business against liability and expenses related to a data breach or cybersecurity attack if you are storing customer data. Although your clients should carry their own cyber liability insurance for the data and personally identifiable or confidential information stored on their servers, make sure your business assets are protected with third-party cyber liability coverage.
Technology errors and omissions (E&O) insurance is another popular policy for tech startups. E&O insurance provides coverage for when a customer files a lawsuit against you over a mistake in your code, a missed deadline, or an oversight that caused a financial loss.
Workers’ compensation is likely mandatory if you have employees
Workers’ compensation insurance is mandatory in most states for businesses with employees, and it can also provide important protections for sole proprietors. Coverage includes reimbursement for lost wages and medical bills if you or one of your employees is injured or becomes ill due to a work-related incident at your tech startup. Policies often include death benefits, as well.
Each state has different regulations, which means you might need different types of coverage if you have employees in several locations. Learn more about state workers’ compensation laws.
Directors and officers insurance is not just for big business
You might think that only major corporations need directors and officers (D&O) insurance, but that’s not the case. Your IT startup will likely need D&O insurance if you want to attract top talent, get venture capital funding, or go public.
D&O insurance is critical if your tech startup relies on its leaders to decide how to invest company funds and determine the future direction of the business. It covers your directors and officers against lawsuits stemming from management decisions they make on behalf of your company.
When investments don’t go as planned or these leaders make poor management decisions and are sued, the policy ensures they won’t have to pay out of pocket to defend themselves in court. Without the coverage, your IT firm may have a difficult time retaining the most talented and capable professionals.
Investors, such as venture capitalists, may also ask for proof of D&O coverage as part of their conditions for investing in your company. D&O insurance is frequently bundled with employment practices liability insurance (EPLI), which covers claims brought against your tech startup by former, current, or prospective employees.
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