November 3, 2021

Essential Insurance Policies for Startups

Essential Insurance Policies for Startups

Insurance for businesses and commercial enterprises has come a long way over the past decades, with the demand for it only increasing to match regulations and the need to safeguard businesses’ longevity.

Commercial Insurance is not just indispensable for large and well established businesses, but also for those that are just entering the commerce ecosystem- startups.

Startups function in dynamic environments where they have to grapple with a number of risks- depending on the industry, location, condition of the economy, their funding status, etc. To sufficiently manage these risks, they need to back their growing leadership, human resource, and day to day operations with certain insurance policies.

Let’s take a look at some essential insurance policies most startups need:

A Commercial General Liability Insurance policy helps your business cover damages from any lawsuits claiming death, bodily injury, third party property damage, and personal injury (libel or slander) caused due to your business.

Every startup or small business needs to have this basic insurance policy to protect themselves from mishaps or accidents occurring in the business premises or due to business activities. You can get coverage for legal costs, medical expenses, and any payable damages to a third party. Furthermore, this type of insurance can also cover any damages or injuries caused due to the use of your business’ products.

This insurance also falls under the ‘liability’ segment, similar to a General Liability Insurance policy explained above. Professional Indemnity Insurance also known as Errors and Omissions Insurance protects professionals like accountants, lawyers, service providers, etc. from any negligence, malpractice, or wrongdoing claims made by their clients.

This type of insurance is necessary for professionals and businesses offering their services as products, since such claims are not covered by general liability insurance. Here, you will be indemnified for defence costs and any damages or compensation payable due to a court judgement.

Know more about this policy here

Commercial Property Insurance provides coverage for any loss, destruction or damage to your business’ property- which includes buildings, office structures, stock, furniture,, plant and machinery, computers, other office equipment, etc. It is further divided into different types of insurance policies such as Fire and Allied Perils Insurance, Contractor’s Plant and Machinery Insurance, Marine Cargo Insurance, among others.

These policies will protect your commercial property against a number of risks like natural disasters including floods, earthquakes, storms, and volcanic eruptions, fire, theft, burglary, malicious damage, material damage due to accidents, riots or strikes, among several others.

Know more about Property Insurance for Business here

Workmen's Compensation Insurance, now better known as Employee Compensation Insurance, can help the policyholder in case of accidents occurring during working hours that result in death or disability of their workers / employees. It also covers medical expenses, lost wages, and damages to the worker’s family in the event of major illness, injury or death.

In India, Workmen Compensation Insurance is mandatory as per the Workmen’s Compensation Act, 1923 for businesses who employ more than 20 workers. Earlier this insurance was only applicable to manufacturing units. However, it has been renamed in recent years to the Employee Compensation Act & now applies to employees of other areas including corporates & SMEs.

This policy can also protect your business from any lawsuit initiated on account of  any work related injury or death, thereby preserving your startup’s reputation.

Learn more about Workmen's Compensation Insurance on this blog

Director's and Officer's (D&O) Insurance covers the legal liability of your company that may arise from any civil or criminal lawsuit against your senior company officers or managers for any wrongdoing or negligent acts conducted in the course of their employment.

Here, the personal losses suffered by company directors and officers are covered. Additionally, any defence costs or payable damages are also provided for.

This policy is not mandatory in India by any law or act, but remains a critical insurance policy to include in a startup’s risk management program. Because of the grave negative impact directors’ and officer’s misconduct can have on a startup’s potential for growth, investors and funding institutions find it favorable when such a policy has been taken.

Read more about this policy here

Startups these days cannot defer undertaking certain insurance policies to a stage when they are more developed as a company. Creating a pool of commercial insurance policies as a tool to manage risk can have substantial contributions to a startup’s long term sustainable growth. It will not only showcase your ability to think long term but also attract future investors and employees to work with you.

Learn how you can protect your business against Burglary and Theft here

Opinions, conclusions and statements of intent expressed in this article are that of the author and Verak does not accept liability for the views expressed unless confirmed by an authorized representative of the Company independently of this communication.