Whether you’re a lean start-up of eight or a regional family-run business, every company needs insurance. We all do. Sometimes it’s required by law, as with worker’s comp. Sometimes a client or board member requires it. Most importantly, it’s simply a prudent way to run your business. Regardless, insurance is a tool that cannot be ignored. Around 40 to 60 percent of SMBs never recover from a disaster1 and 58 percent of all cyber-attacks are directed at SMBs2. These kinds of figures are not to be ignored. A fire, a single allegation, or even a simple mistake can be devastating to a company. Done right, insurance is your simple, most effective solution.
The good news is that protecting your company does not have to be costly or complicated. It can be smart, and it can be based on your SMB’s specific DNA. Who are you, what do you do, where and how do you do it, what direction are you headed, what is your risk tolerance, and where do you most need protection?
Every small business is different. A CPA firm shouldn’t exist without errors & omissions, but if you’re a restaurant, do you need it, too? Or something similar? A distribution warehouse will need to double down on property insurance, while a small, remote team may forgo it altogether. You don’t want too much too soon or too little too late. And you can’t afford for it to cost too much either. Instead of just thinking about what coverage you need, it’s helpful to think of when you need that coverage.
Here are five key policies to consider if you’re a start-up or SMB. A good broker will be able to simplify the process and show you where it makes sense to trim coverage or add.
- General Liability (GL). This is ground zero for SMBs. Almost every company that exists should have a minimally basic GL insurance policy. (Don’t worry, basic policies start around $30/month.)
- Errors & Omissions (E&O). Did you fail to meet the deadline for your client’s new website? Did your project manager ship the components to the wrong warehouse so the manufacturer missed their deadline? Did someone on the team (who?) fail to double-check a crucial measurement on the blueprints? People make mistakes, but mistakes can be costly. E&O covers these all-too-common scenarios and starts around $23/month. The median cost is $59/month depending on what kind of business you run.
- Cyber. If you have a computer, you need cyber insurance. Absolutely not kidding. It might start around $25/month, but most SMBs average around $125/month, and the statistics show that it’s not if you’ll be a victim of a cyber-attack or a data breach, but it’s when and for how much.
- Directors & Officers (D&O). If you raise money or have a board, you need this D&O. D&O insurances protects the personal assets of founders, board members, and other officers against claims of fraud or malfeasance. If you’re raising via crowdfunding or Reg CF, A, or D-506(c), there is one product available and you need it. It’s called TigerMark and is a specialized D&O for crowdfunding.
- Employment Practices Liability Insurance (EPLI). As your team expands, so do your HR risks of disgruntled employees or charges of sexual harassment, discrimination, failure to promote, defamation, or wrongful termination. In fact, more than 40 percent of EP lawsuits are filed against companies with less than 100 employees6. While the median price for EP is $172/month, the average cost of settling out of court is $75K7 and the average jury award is $217K8 (not including legal fees).