What is startup insurance, and why do I need it for my small business?

3 minute read  

Starting your own business is tough. It takes hard work and grit. Maybe you’ve had to borrow money or put your life savings on the line.

You’ve probably heard the old adage: With great risk comes great reward. And the rewards of seeing your dream blossom into a prosperous business are many.

Canada is built on small businesses – a recent estimate suggests there are about 50,000 startups across the country, making up about two per cent of the total private sector workforce. However, more than one in five (21.5 per cent) of new small businesses don’t make it through their first year, and only about half survive for five years.

So, what can you do to survive — and thrive — beyond your first five years? One way to mitigate risk is to invest in startup insurance. If you were thinking you could put off buying an insurance policy until your business grows, you may want to reconsider. Startup insurance can help you survive unforeseen losses and litigation so you can see your business ideas through to fruition.

Say, for example, you experienced a loss at an early stage of growing your business. Maybe thieves break into your retail shop and wipe out your inventory. Maybe you’ve invested in an expensive piece of equipment that’s damaged in a violent storm. Or maybe delayed stock leaves you struggling to keep your business afloat.

You face all the same risks as an established business, but you likely don’t have the same resources as one. So, if you don’t have coverage (or the right coverage) to help you cover a major loss or lawsuit, your startup could be in trouble. A single incident could end your business before it ever gets started.

What is startup insurance?

Startup insurance is designed to help protect your business from risk, such as expensive repairs or legal fees. But it can also come with other benefits — for example, it might show investors or stakeholders that you’re a safer choice than competitors that don’t have insurance.

Every startup is different, so every startup insurance policy should be different. While insurance for startups should include the basics, such as commercial general liability (CGL), it can also be customized to specific business needs.

Who needs startup insurance?

Whether you sell retail products (such as home décor) or digital products (such as software), you should consider startup insurance. But there are also many other startup businesses that would benefit from a customized policy — even if they don’t have a physical storefront or sell a physical product.

If you’re a consultant who offers professional advice, a freelancer who provides professional services, or a contractor or skilled tradesperson, then you also have unique coverage needs. If you deliver products or services, you’ll also want to make sure you’re covered (that includes a commercial auto policy, even if you’re driving your personal vehicle).

In some cases, you may be required to carry insurance by third parties. For example, you’ll need liability insurance if you plan to distribute products through national retailers or wholesalers. You might also require insurance when applying for a business loan or booking a spot at a trade show.

The types of products you sell or services you provide are just some of the factors that will determine which specific coverages you need and how much your policy will cost.

Startup risks: Why you need insurance

Maybe you don’t operate out of a brick-and-mortar building, so you’re not worried about liability, such as slips, trips, and falls on your property. However, you may be at risk of other types of liability claims if your startup involves consulting, providing a service, or selling a product.

Say, for example, one of the products you sell has a design or manufacturing defect that caused bodily harm to a customer. Even if it wasn’t your fault, you could still be held accountable for  damages and legal fees, which could harm your business’ reputation.

Professional liability can also be a major concern for startups that provide professional consulting or services. For example, a client could sue you if they believe they’ve suffered a financial loss due to errors, omissions, or negligence in your work.

Plus, you’re also faced with common risks that all businesses face: property damage from natural disasters, theft, vandalism, and cyberattacks, to name a few. Startup insurance can help you mitigate losses from these types of unforeseen circumstances — so your business not only survives but can continue to grow and prosper.

Protect your small business with TruShield Insurance

Successfully managing your small business involves more than just your skills and hard work. It’s also about being prepared for unexpected issues that can arise. To get the right coverage that’s tailored to you and your business, visit our Startup Insurance page today.

This blog is provided for information only and is not a substitute for professional advice. We make no representations or warranties regarding the accuracy or completeness of the information and will not be responsible for any loss arising out of reliance on the information.