What Insurance Does a Startup Need at Each Stage?

Before you have employees or investors, start with the basics:

• General liability: covers third-party bodily injury and property damage claims, and landlords and larger customers often require it.
• Business property or renter's coverage: protects equipment and inventory, and it matters if you keep expensive hardware on site.
• Cyber liability: covers costs after a data breach or ransomware event, and it matters as soon as you hold customer data or take payments.
• Workers' compensation: most states require it once you have employees, and rules differ by state and on how contractors are classified.
• Professional liability (errors and omissions): covers claims that your product or advice caused a customer financial loss, and it's common for software and service businesses.

Ask your broker which of these your contracts and state law require, and which you should add even though nobody's forcing you.

Investors, larger customers and a bigger team add exposure. Consider these additions:

1. D&O: as you add outside directors and investors, this protects the people making decisions. See what drives D&O cost before you shop.
2. Employment practices liability (EPLI): covers claims such as wrongful termination and discrimination, and becomes more relevant as headcount grows.
3. Higher cyber and E&O limits: enterprise customers often require higher limits in their contracts.
4. Hired and non-owned auto: if employees drive for work in their own vehicles.
5. Crime or fidelity coverage: protects against employee theft and some fraud, and it matters once you're moving significant money.
6. Fiduciary liability: if you start a 401(k) or other benefit plan.

Revisit each limit at every priced round, since a larger company usually calls for higher limits.

Contracts often set your minimum coverage before your own risk assessment does. Read the insurance clause in each of these:

• Customer agreements commonly require certificates of insurance showing general liability, cyber and professional liability, sometimes with the customer named as an additional insured.
• Leases typically require general liability and property coverage with a named landlord.
• Investor documents often refer to D&O coverage as a closing condition or covenant.
• Lender agreements may require property coverage or key person insurance.

Keep a table of every coverage requirement, its limit and the contract it comes from. When a customer asks for a certificate, you can produce it quickly, and when a limit is short, you'll know before a deal stalls.

Do this once a year, and again at each financing:

1. List your operations: what you sell, where, how you handle data and how many people work for you, including contractors.
2. List contractual requirements from customers, landlords, lenders and investors.
3. Map each risk to a policy type, and note where you have no cover.
4. Ask for quotes from a broker and one or two startup-focused sources such as Vouch or Embroker, using identical limits.
5. Compare terms, including exclusions and retentions, as well as price.
6. Calendar renewal dates and certificate requests.

Ask whether a package policy covering several lines makes sense for your company, and what changes when you raise a round or cross a headcount threshold. Confirm what each insurer needs in order to issue certificates quickly.

These come up often:

• Assuming general liability covers data breaches or professional mistakes. It generally doesn't.
• Skipping workers' compensation for people who are legally employees, including some workers classified as contractors.
• Letting a claims-made policy lapse, which can leave prior incidents uncovered.
• Carrying limits well below what customer contracts require.
• Ignoring exclusions for things like prior acts, regulated activities or specific technologies.
• Failing to update policies after a pivot, a new product or a move into a new state.

Insurance rules and requirements vary by state and by contract, so confirm your needs with a licensed broker or attorney. Your finance lead can help you model the retention you can afford on each policy.