Protect your business with tech startup insurance policies

The most effective risk management strategies begin with the right commercial insurance coverage. Tech startup owners are no strangers to risk, and the most successful ones understand the importance of managing risks from day one. Startup business insurance can protect your small business against many challenges that tech companies face.

Why your tech startup needs insurance

Business insurance for startups provides valuable protection against the unexpected. Without coverage, threats like theft, fire, data breaches, or lawsuits could disrupt or damage your business.

IT companies should consider startup business insurance for a number of reasons:

• Certain types of coverage are required by law, like workers’ compensation insurance. Other coverage may be required by client contracts, mortgage lenders, or office landlords.
• Investors and customers look for startups with insurance protection because it lowers their risk and provides peace of mind.
• IT startups are vulnerable to data breaches and cyberattacks. Whether you or your client’s systems are attacked, insurance protects you from expensive cyber claims.
• Property damage and injury lawsuits can be costly. With startup business insurance, your IT company is protected from liability claims.
• Your startup could be sued over a mistake, oversight, or defective product. Insurance will cover the costs if a customer takes you to court.

Your startup will likely want to consider several insurance options. Depending on your business, you may benefit from some or all of the following policies:

General liability insurance

General liability insurance is essential for almost every tech startup. It covers the cost of legal fees and settlements if your company is sued for:

• Client injuries
• Client property damage
• Advertising injuries, like copyright infringement, libel, and slander

General liability insurance is often required as part of a property lease, mortgage, or client contract.

The median cost of general liability insurance is less than $30 per month. The more risk your IT startup faces, the more expensive your policy will be.

Errors and omissions insurance

Errors and omissions insurance (E&O), sometimes known as professional liability insurance, covers the cost of a client lawsuit over inaccurate, late, or unsatisfactory work. E&O insurance provides coverage related to:

• Professional oversights and mistakes
• Failure to deliver promised work or services
• Accusations of negligence

Most IT businesses choose to purchase technology errors and omissions insurance (tech E&O), which bundles E&O and cyber liability insurance together. This policy is often less expensive than buying these policies separately.

The median monthly cost of tech E&O insurance for an IT startup is about $60. Most IT businesses choose a policy with a $1 million per-occurrence limit and a $1 million aggregate limit.

Cyber liability insurance

Tech startups that handle sensitive information, high volumes of data, or work in cybersecurity should strongly consider cyber liability insurance. This coverage pays for expenses related to data breaches or other cyber incidents at your business or your client’s business.

There are two types of cyber liability insurance: first-party and third-party.

• First-party cyber liability insurance pays costs related to a cyberattack on your startup’s networks and systems.
• Third-party cyber liability insurance covers the costs of a lawsuit related to a data breach at a client.

If your business is the victim of a data breach, ransomware attack, or other cyber crime, cyber liability insurance will cover costs such as:

• Regulatory fines and penalties
• Customer notifications
• Finding and fixing the security flaw
• Credit and fraud monitoring services
• Crisis management and public relations

For IT startups, the median cost of cyber liability insurance is $145 per month. The amount of premium you’ll pay will be based on your level of cyber risk.

Commercial property insurance

Commercial property insurance will pay to repair or replace your real estate and business property if it’s stolen, lost, or damaged.

Commercial property insurance covers essential business property such as:

• Tools, electronics, and equipment
• Products and inventory
• Furniture and desks

Most landlords and mortgage lenders require you to carry this insurance.

The median monthly cost of commercial property insurance is $63. However, you may be able to save money on property insurance by purchasing a business owner’s policy.

A business owners’ policy (BOP) is a popular business insurance policy that combines general liability insurance and commercial property insurance coverage.

The median cost of BOP insurance is $53 per month. Purchasing bundled coverage with a BOP policy may be cheaper than buying general liability and commercial property insurance separately.

Commercial, hired, and non-owned auto insurance

IT startups that use company-owned or personal vehicles for work purposes are legally required to have commercial auto insurance or hired and non-owned auto insurance.

Commercial auto insurance covers business-owned vehicles. It covers costs related to an accident, including:

• Property damage
• Medical bills
• Lawsuits

Hired and non-owned auto insurance provides liability coverage for vehicles used by you or your employees for work purposes. It may cover:

• Personal vehicles used for work
• Employees driving for work errands
• Car rentals for a business trip
• Leased vehicles

IT businesses pay a median premium of $200 per month for commercial auto insurance. Hired and non-owned auto insurance costs roughly the same.

Workers’ compensation insurance

In most states, tech startups with at least one employee are required to carry workers’ compensation insurance. Workers’ comp covers expenses related to workplace injuries and illnesses such as:

• Medical expenses
• Partial lost wages

Employers’ liability insurance is typically included in a workers’ compensation policy. It protects your business if an employee files a lawsuit following an injury or illness.

The median cost of workers’ comp insurance for an IT company is $35 per month. The more employees you have, the higher your premium will be.

Fidelity bonds

Fidelity bonds protect your IT startup if an employee steals sensitive information from your business or a client. It provides liability coverage related to:

• Theft
• Fraud
• Electronic funds transfer
• Unlawful data access

Fidelity bonds typically cover theft of "tangible" property, so they may not protect against an employee who steals intellectual property from you or your client.

There are two types of fidelity bonds: first-party and third-party.

First-party fidelity bonds protect your business from dishonest employees. They cover expenses related to:

• An employee who steals from your startup
• An employee who commits fraud against your startup
• Employee forgery that impacts your startup

Third-party fidelity bonds protect your clients’ property from dishonest employees. Third-party fidelity bonds cover expenses related to:

• An employee who steals from a client
• An employee who commits fraud against a client
• Employee forgery that impacts a client

Some clients require tech startups to carry fidelity bonds before they’ll hire you.

For an IT startup, the median cost of a fidelity bond is less than $90 per month.

Other policies to consider

There are a few additional insurance policies that may be beneficial to IT companies. These include:

• Employment practices liability insurance (EPLI), which protects against employee lawsuits related to wrongful termination or employee rights violations.
• Directors and officers insurance (D&O) protects executives from financial damages related to business decisions or recommendations they make. 
• Product liability insurance, which protects against customer lawsuits if your business creates a product that causes physical harm, injury, or illness.

Deciding what startup insurance is right for you

Every tech startup faces unique risks and has different insurance needs. As you develop your risk management strategy, first identify your biggest risks, and then define your budget.

Start by asking yourself the following questions:

• Do your clients’ contracts request proof of insurance or fidelity bonds?
• Could the advice or services you provide cause a financial loss to your client?
• Do you have an office or place of business visited by clients or the public?
• Do you visit your clients’ place of business?
• Do you own expensive business equipment or inventory?
• Do you have employees?
• Do you store personal information like medical records, Social Security numbers, or credit card numbers?
• Could a client blame you for a data breach at their business?

If you answered yes to any of these questions, then you likely need insurance protection. Tech companies most often choose the following types of insurance policies:

• General liability insurance
• Errors and omissions insurance
• Cyber liability insurance
• Workers’ compensation insurance
• Hired and non-owned auto insurance
• Fidelity bonds

What’s your insurance budget?

The amount you have to spend on insurance will affect the types and amount of coverage you buy. First, figure out what coverage you may be required to carry by clients, landlords, lenders, or the law. Then assess your biggest risks. For example, your cyber risks will be high if you handle sensitive data or clients’ cybersecurity.

Next you’ll need to determine how much premium you can afford to spend. By choosing different deductibles and policy limits, you can adjust the amount of premium you’ll have to pay. If you need guidance, our expert agents are here to help you evaluate your specific risks and find the right coverage at the right price to keep your IT startup protected.

Complete Insureon’s easy online application today to compare quotes for business insurance from top-rated U.S. carriers. Once you find the right policy for your small business, you can begin coverage in less than 24 hours.