Business Insurance for Startups
The following blog is from Jake Cho ’17, a Butler Venture Accelerator team member.
On March 4th, the Butler Venture Accelerator held a peer to peer session focused on discussing various types of insurance start-up companies need to consider when creating a business at all stages. We talked about four main topics of business insurance: Business Risk insurance, Risk Assessment and Management, Business Continuity Planning, and Employee Benefit.
Although businesses want to succeed, entrepreneurs cannot think about the worst case scenarios. Start-ups are at risk to face uncertainties that can be potentially catastrophic. Depending on the nature of your company, you may be required to have certain insurances before starting. Not only can business insurance protect businesses and interests of entrepreneurs, but it can also attract and retain employees in companies.
There are four types of business insurance: Liability Insurance, Property Insurance, Workers’ compensation, and Business Auto. Liability Insurance can be looked as general liability insurance and product liability insurance. General liability insurance covers claims due to accident, injuries, and negligence. It provides protection for bodily injury, property damage, medical expenses, libel, slander, false advertising. Product Liability Insurance is liable for safety of the product manufactured and or sold by you. It protects against financial loss as a result of a product defect that causes injury. Property Insurance covers loss and damage of company property. Property includes business personal property such as furniture, equipment, displays, etc. Property insurance covers loss of business income, business interruption, computer equipment, valuable papers/documents and damage of fire, smoke, water damage, wind or storm damage, theft. Workers Compensation protects the employer when providing compensation to the employee that suffers a job related injury or job related disease. It is required by state law for companies to have workers’ compensation. Business Auto covers liability and physical damage on company vehicles and fleets. These vehicles can be hired cars and non-owned cars. It is usually option coverage with general liability insurance.
Another topic we talked about is Risk Assessment and Management. Having business insurance to protect your company is good, but businesses have to assess and manage their risks to avoid catastrophes at all costs. Businesses must decide to assume financial responsibility for certain events. Businesses must decide to circumvent a risky activity to avoid peril. Businesses must modify their behavior to diminish the probability of negative outcomes.
The third topic discussed was Business Continuity Planning – Key Man Insurance. Key Person is the key employees in organizations that bring success in the company. Key Person Insurance is important because people are the biggest assets of a business. Loss in key person could delay product launches, disrupt management and result in loss of earnings to companies. Because key person in companies is crucial to its success, there is business insurance for these particular people. Key Man Insurance provides life insurance to protect the company from Financial Losses such as death and disability. Key Person Insurance can help to replace the economic loss, intellectual loss and cost to hire & train a new key person.
The last topic of the session was Employee Benefits – Attract & Retain. Business insurance protects companies from catastrophic situations, but it also helps companies to attract and retain benefits from the employee benefits companies can provide. Why are employee benefits important for startup companies? Employee benefits attract new talent, encourage employee loyalty and company culture, and reduce investment time of recruitment. Basics of Employee Benefits are health benefits, dental care benefits, life insurance, LTTD (Long Term Disability), STD (Short Term Disability), retirement program, voluntary benefits and vision.
Through this session, young entrepreneurs were able to gain understanding and awareness that business insurance is not only important for big businesses, but it is also crucial when starting new businesses.