What is business insurance?
You get some protections from the kind of business structure you choose. An LLC or a corporation status, for example, can protect your personal property from lawsuits.
However, that protection has limits.
Unexpected catastrophe? Business insurance can fill in any gaps in coverage. This will make sure both your personal and business assets are fully protected. For each type of insurance, your organization pays a monthly premium to cover or reduce the costs of claims made against it.
What insurance do you need?
Review the following types of business insurance and carefully consider which to obtain for your organization. You also may be legally required to purchase certain types of business insurance.
(We’ll cover insurances relating to staff, like healthcare, dental, and vision, in a future post.)
In what follows, we’ve listed approximate costs for each type of insurance. Treat these as ballpark estimates, since your quotes will depend on a range of factors — like your industry, location, headcount, and specific risk factors.
Required insurance
In the US, the federal government requires every business with employees to have workers’ compensation, unemployment, and disability insurance. These are often required outside the US, too.
| Protects you against… | Suitable if your organization… | Approximate cost | |
|---|---|---|---|
| Workers compensation | Employees suing you if injured in the course of employment, by providing wage replacement and medical benefits to employees.
Example: “Slip and fall” accident in the workplace producing a back injury. |
Has employees | 1% of payroll |
| Unemployment | Employee disputes and reputational damage arising from individuals who have lost their jobs through no fault of their own.
Examples: Layoffs; Company closures. |
Has employees | 1% of payroll |
| Disability | Employee disputes and reputational damage arising from individuals who are unable to work due to a disabling injury or illness.
Example: An employee is diagnosed with a serious illness that prevents them from working for several months. |
Has employees | 0.5% of payroll
|
Unemployment and disability insurance are primarily designed to protect employees, rather than your organization — although they provide indirect protection to your organization too.
Some US states also require additional insurance. Laws requiring insurance vary by state. Visit your state’s website to find out the requirements for your business.
Recommended insurance
We’d recommend obtaining the following insurances without caveat. In each case, the insurance is relatively inexpensive, and the costs of claims can be very high — which is why these insurances are especially common across organizations.
| Protects you against… | Suitable if your organization… | Approximate cost | |
|---|---|---|---|
| Employers (”general”) liability | Claims from employees who suffer work-related injuries or illnesses.
Examples: “Slip and fall” accidents on your premises or events; Property damage on your premises or rented space. |
Has employees (more so if in an industry with higher risks of workplace injuries) | $10 per employee per month |
| Public and product liability | Claims made by third parties for injury or damage caused by the organization’s business activities or products.
Example: A customer is injured by a defective product. |
Sells services or products to third parties | 0.25% of revenue |
| Professional liability | Financial loss as a result of malpractice, errors, and negligence.
Examples: Failure to deliver work; Providing a service with significant errors. |
Provides professional services or advice | $75 per employee per month |
| Directors and officers | Claims made against directors and officers for alleged wrongful acts while managing the company, which may put their personal assets at risk.
Example: A lawsuit from investors or donors around misuse of funds. |
Has a board of directors with personal liability | $200 per month |
Insurance to consider
The following types of insurance may be worthwhile, depending on your organization’s activities and risk appetite.
| Crisis containment | Costs associated with a crisis, such as public relations expenses, legal fees, and communication strategies to protect the organization’s reputation.
Example: A data breach exposes customer information, causing reputational damage. |
Sells products which, if recalled, would cause significant reputational damage | $10 per employee per month |
|---|---|---|---|
| Key person | Financial losses in the event of the death or extended incapacity of a key employee whose skills, knowledge, or leadership are crucial to the business.
Example: The CEO passes away. |
Heavily depends on one or a few key individuals for success | $250 per key person per month |
| Event | The cancellation, postponement, or interruption of an event due to unforeseen circumstances. It may also cover liability for injuries or damages that occur during the event.
Example: A storm forces a cancellation of a planned launch event. |
Frequently hosts events | $500 per event |
| Commercial property | Loss and damage to company property due to a wide variety of events.
Examples: Damage from fire, smoke, wind and hailstorms, civil disobedience and vandalism. |
Owns or leases physical property | $150 per month |
| Employment practices liability | Disputes between management and employees.
Examples: Lawsuits around wrongful termination, harassment, or discrimination. |
Has many employees or is in an industry prone to employment-related lawsuits | $150 per month |
| Fiduciary liability | Disputes related to an organization’s benefit plans.
Example: Employee sues for mismanagement of company’s retirement plan |
Risks mismanagement of employee benefit plans | $75 per month |
| Cyber | Cyber attacks.
Examples: Stolen data; Ransomware. |
Manages customer data which, if leaked, would cause significant reputational damage | $200 per month |
Sourcing & reviewing quotes
When it comes to sourcing quotes, you have two options: request quotes from a broker, or request a quote from the provider directly.
Requesting quotes from a broker
A broker is a person or company that arranges transactions between your organization and an insurance provider. Brokers may receive a commission from the provider when a transaction succeeds, or they may charge a fee for their service.
Some brokers are able to source quotes from providers across a range of insurance categories; others focus on specific insurances. And some brokers are able to source quotes across the US, while others focus on specific states.
In order to request a quote from a broker, you’ll want to collate some information about your organization and employees to include in your initial message — a “census.” Using a census template will avoid a back-and-forth where the broker requests information that they need in order to source suitable quotes.
Once you’ve put together your census, you’ll want to reach out to a broker. We’ll share a list of brokers we recommend in a future post on platforms and providers.
Requesting quotes from a provider directly
You may be able to request quotes from a provider directly by navigating their website. However, we don’t always recommend this approach, because:
- Interacting with providers is often bureaucratic and time-consuming;
- Many providers don’t provide quotes to organizations with a small number of employees (e.g. <20); and
- Some providers refuse to provide quotes to organizations directly.
Reviewing quotes
Different brokers are likely to present their plans in different formats. We strongly recommend consolidating quotes into a single spreadsheet, for ease of comparison. You may also consider colour-coding values to facilitate comparison.
Once you’ve identified and obtained the relevant business insurance packages, remember to re-assess them regularly (e.g. every 1-2 years).
Stay tuned for our next post: Identify key risks.