What insurance does my startup need?

Welcome to the third article in our startup series – where we break down business insurance for startups.

So, now you know why you need insurance for your startup and how to protect your business from startup risks it’s time to buy business insurance for your startup. But where do you start?

With so many covers on offer, it can be overwhelming when you start digging into it, but we’re here to help. This article will run through the most common types of cover that startups need. And, when you’re ready, our quote builder can guide you to most relevant covers for your business – simply click on ‘Start your quote’ to begin.

Here are some of the most common covers that startups should consider.

Employers' liability insurance

Most UK businesses that employ staff – whether they’re permanent, part-time, freelance or contractors – is legally required to have employers' liability (EL) insurance. EL covers you if an employee claims they sustained an injury or became ill as a result of their work. Failure to take out EL could result in expensive fines from the Health and Safety Executive (HSE).

Public liability insurance

This type of cover is another essential for all businesses. Public liability insurance protects your business if you or one of your team causes injury or property damage to a third party. That includes on your own premises, while out visiting clients or partners, when running or attending industry events, or out filming.

Professional indemnity insurance

This is a popular choice for any startup that offers a professional service or advice. This could be managing your clients’ investments, advising on insurance needs, providing a financial app or software – or something similar. Professional indemnity insurance (PI) provides protection in the following situations:

• If a client suffers – or claims to suffer – a financial loss as a result of your work
• You infringe industry regulations
• You become involved in an IP dispute – whether protecting your own or defending an infringement on somebody else’s

If you face any of these situations, PI will cover your legal expenses, compensation costs and resulting fines, many of which are insurable.

Cyber liability insurance

Cyber-attacks and data breaches are among the biggest risks facing startup businesses, particularly if you’re storing and processing customers’ personal or financial data. Hackers can cause catastrophic damage to both your systems and business reputation. Cyber insurance helps minimise the damage with the following:

• Protection against data protection fines (where insurable by law)
• Legal and compensation costs
• Extortion and system rectification costs
• PR expenses and financial loss due to system downtime

Directors & officers liability insurance (D&O cover)

You might not realise it, but as a director of a limited company, you can personally face legal claims due to your own actions. For example, making an important decision without shareholder approval or overseeing errors in financial reporting. Doing so can mean facing fines, disqualification, or even prison sentences!

Claims like this won’t necessarily be covered by your company PI policy, which is why D&O cover is so important, as it covers any allegations if you have personally done something wrong. You could also find that investors will ask about D&O as part of their due diligence process. Buying this type of cover shows them that you take your responsibilities seriously.

Office & business equipment cover

Whatever kit you rely on, office insurance covers everything in the office, including your fit-out, computers, office equipment, furniture and documents. Meanwhile, business equipment insurance protects portable gear you take out with you, such as laptops, mobiles, cameras and tablets.

PSD2 insurance

The second payment services directive (PSD2) has opened the way for loads of new fintech services – but they have to satisfy the regulations. One key requirement is that all payment initiation service providers (PISPs) and account information service providers (AISPs) must be able to demonstrate that their PI cover meets the required insurance limit and excess levels. PSD2 insurance is important so that you can effectively compensate any customers who lose money as a result of your service, and to pay for regulatory investigations, defence costs, and penalties that are legally insurable.

What insurance is legally required for startups?

Like most companies, you are likely to be legally required to have employers' liability insurance as soon as you take on staff – even if you only employ freelancers and contractors. And if you’re a payment initiation service provider (PISP) or account information service provider (AISP) under PSD2, then compliant PI insurance is also a legal obligation.

No other policies are legally required for startup businesses, however, you may find that your clients or investors require you to have certain cover, including professional indemnity (PI), public liability (PL) or directors and officers (D&O) insurance.

We hope you enjoyed the third installment of this series. To learn more, check out the other articles in the series, how to protect your business from startup risks and 8 reason why startups need insurance.

You may also like:

• Startup insurance - a guide for founders
• Understanding risk management in business
• Risks your digital agency needs to prepare for
• Carrying out a cybersecurity risk assessment
• The 5 biggest risks facing CEOs and business owners