5 Useful Insurance Tips For Startup Founders

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A good insurance is expensive - but that doesn't mean the most expensive one is also the best one. Here are 5 useful tips for founders from expert Michael Dräxler.

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Insurance – not exactly everyone’s favorite topic, especially for startups. As a founder it’s important to stay on top of your expenses from the beginning on and only outsource risks which are existance-threatening for either yourself or your business. It’s a fact that a good insurance contract is expensive – BUT not every insurance(-product) and not every add-on benefit is reasonable.

To give you an overview we’ve put together a lust of contracts and products that are useful not only for your startup but also yourself as a founder in order to get optimal support, be carefully secured and be able to focus on what really matters: your business.

#1 Secure yourself and your company from liablility.

Everybody makes mistakes, but you can’t always predict them. For this reason it is important to protect yourself and your company from liability claims. A liability insurance not only assumes the payment of a justified claim, but also the defense of wrongful claims.

Different products for different sections of a firm exist: professional liablity, product liability, public liabilty and D&O insurance (coll. “manager liability”) are the most important ones. Nevertheless it depends on the company which of these components are relevant to you.

  • Professional Liability: you’re offering a service.
    • e.g. An IT company updates an existing database. Due to a mistake the contents of said database are impractical and the backups cannot be restored. Now the IT company reclaims the costs for manual input.
  • Product Liability: you’re manufacturing or importing a product.
    • e.g. A company produces the components which are implemented in robotic facilities. Due to a construction fault of the components the facilities are unusable after a short amount of time and have to be refitted costly.
  • Public Liability: you have clients visiting the company area or plant grounds.
    • e.g. An employee drives over the foot of a client with a forklift, who then is unable to work for several months.
  • D&O Liability: you’re partner, CEO or in any other leading position.
    • As founder or CEO you have to make decisions on an every day basis that not only hold chances but also risks. You also have to justify these decisions to your shareholders and investors. A D&O insurance helps in case you’re personally being held liable for a bad decision or omittance of the company or third parties. It then assumes the defence of claims.

#2 Build your own social system.

As soon as you’re in a freelance position many governmental social safeguards will discontinue. You are now in control of when and how much workload you want to take on, but you should have a plan for unforseeable events and also the period after your professional career.

  • Business Interruption Insurance for Freelancers: in longer and unforseen phases of illness this insurance helps to cover your overhead and living costs.
  • Disability Insurance: When there is no way forward and you have to give up your career due to health implications this insurance helps preserving your living standard – in the worst case until the start of your governmental rent.
  • Rent Provisions: It is definitely not the first priority nevertheless you should keep it in mind. The ealier you start, the better.

#3 Protect your investment.

Machines, company bulding, interior and goods. When a computer dies you can go to the nearest store and buy a new one. But what if most of your interior becomes useless due to a fire or another catastrophe? This is where the factory insurance comes in. You can also secure the downtime of your firm. The so-called business interruption insurance covers overhead costs until the firm gets back into business.

In summary you can go for:

  • Building Insurance
  • Contents Insurance (e.g. interior, goods, resources, tools and machines)
  • Machinery Breakdown Insurance (e.g. an important manufacturing machine is broken)
  • Business Interruption Insurance (e.g. after a fire, a storm or water damage)

#4 Protect your knowledge, your work and your information.

You’ve come up with a manufacturing technique? The information you offer to your clients in exchange for a fee are worth lots of hours of research? You work with important client data? These days a lot of information and knowledge is essential. Protect your and your client’s intellectual property. But beware: the insurance you go for has to be adjusted to your company’s purposes. Products include the legal costs insurance and the cyber & hacking insurance.

#5 Protect your income bias.

Every entreprneur wishes for suppliers, who are reliable, who pay (a lot) in time and deliver to clients on a budget. Reality often differs from this wish. Especially if your income is dependend on a few big jobs and the client it’s important to keep an eye on this area. A credit insurance will cover costs in case of payment default of your business partners. A legal costs insurance helps when it comes to contract disputes with clients or suppliers.

So, how do you get a good insurance contract? If you want to save some money you can go through filling pages of information and compare different products. But the most important parts are usually listed in the insurance conditions, which are handed to you upon signing the contract. Plus every insurance has its own contract design which makes it even harder and time consuming for someone without experience to compare them.

The best option is to outsource this task to an independend advisor. They will consult you in terms of which insurance benefits are essential and useful for your startup and will also choose the the right product for particular situations.



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Editor: Susi Wallner

Photo credit: GotCredit via Visual hunt / CC BY