If you’re a startup founder, perhaps researching different insurance policies isn’t at the top of your list as you are bootstrapping your company and try to grow your client base. If you’ve tried to look into it at all, you probably would’ve struggled to find accurate estimates for business insurance costs for startups.
Most insurance-related content available online is either directly posted by insurance companies or sponsored by them. It’s pretty much like finding honest reviews for web hosting providers. Thus, it can be hard to find an unbiased breakdown of policies and costs. Insurance is a sales-heavy industry, and they would instead get your contact information than give you those details without speaking with you.
We’ve decided to put together a comprehensive price guide. In it, we’ll cover all the types of insurance your business might need.
This post has got you covered from basic policies like general liability insurance to more complicated ones like cyber liability insurance.
How Much Does Insurance Cost For a Startup?
Policies relevant to startups can cost from as little as $500 to tens of thousands of dollars per year. You might be thinking that’s not a very helpful estimate… and you wouldn’t be wrong.
For most startups, insurance is very unlikely to break the bank. For instance, Buffer is a startup that’s uniquely open about its finances; back in 2018, they shared their entire year’s budget. Business insurance was notably a relatively minor expense—only included as a part of the 0.6% spent on their offices. Health insurance and workers’ compensation are included in the teammate benefits. These benefits make up 4.6% of their operating costs.
In their 2016 budget, health insurance/workers’ comp insurance amounted to 1.9% of monthly expenses or about 2.9% of total payroll, at $6,635 per month.
At Kinsta, our entire business insurance stack costs roughly $30,000 per year.
But insurance is a long way from offering SaaS subscriptions, so it’s impossible to give a one-size-fits-all answer based on one company’s experience. You might pay a higher or lower percentage of payrolls depending on your company’s size, industry, and situation.
What Kind of Insurance Do You Need For a Small-Scale Business?
The majority of small business incidents are covered by professional liability, workers’ comp, and general liability insurance. Does that mean your startup needs all three?
There is no end-all-be-all correct answer here. As startups and SMBs vary a lot in terms of assets, employees, and risks, we’ve broken each policy down by which particular part of your business they cover.
If you already know which policies you need, you can skip to the section that shows the prices below.
Does Your Business Directly Interact With Consumers or Clients?—General Liability Insurance
If you meet with potential prospects, clients, sell physical products, or in-person services, this type of policy is generally a good idea. While not technically required by law, general liability insurance is considered necessary for growing businesses that want to safeguard themselves from general liability lawsuits.
Even if you’re a sole proprietor who works exclusively with freelancers out of your own home, this policy is still generally a good idea.
What Does It Cover?
Any property damage or expenses related to bodily harm or defamation caused by your employees—anything from a prospect slipping on a wayward banana peel, an employee spilling their coffee on a Xerox machine, to a lawsuit caused by a product release or advertising campaign.
Do You Have to Get a Private Office?—General Liability Insurance, Property Insurance, and Business Owner’s Policy
Times have changed. Many startups and even small businesses have chosen to move to shared offices and coworking spaces rather than rent out dedicated office buildings in light of evolving technology. In most cases, these coworking companies already have insurance policies that cover their properties, and they won’t require any insurance from your company.
However, if you plan to rent traditional commercial property from a landlord, they will require insurance before you can finalize a lease.
Some landlords only require the standard general liability insurance, while others might also require property insurance. You might also know this as “slip and fall insurance.”
What Does It Cover?
General liability insurance covers any basic property damage done by the employees of your company and costs related to injuries that are a direct result of those actions.
Property insurance coverage varies from policy to policy. Still, it will offer more extensive security for your (or your landlord’s) physical assets, from severe water damage or mold to accidental damage to furniture, walls, or floors.
A business owner’s policy is a combination of general liability insurance and commercial property insurance, covering all of the above.
Do You Have Employees on Payroll?—Workers’ Compensation Insurance and Employment Practices Liability Insurance (EPLI)
If your company directly hires any full-time or part-time employees, your company is most likely required to get workers’ compensation insurance. You should also strongly consider an EPLI policy to protect yourself from lawsuits from current/former employees.
Workers’ Compensation Insurance
As of 2021, this policy is required by law for the majority of employers. In the United States, it is regulated at the state level. As a result, the specific requirements and expenses differ from state to state.
Because of the legal requirement involved, the process for obtaining workers’ compensation insurance for your company should be nearly fully automated. That said, you’ll still need to double-check your state’s particular requirements to ensure you’re meeting them.
What Does It Cover?
Workers’ compensation insurance covers medical expenses and a portion of lost wages if an employee suffers an accident or gets sick while at work.
The percentage of lost wages that it covers depends on the individual policy. (For the claims to be valid, the injury/disease needs to be a direct result of the employee doing their duties while at work.)
Employment Practices Liability Insurance (EPLI)
Of course, employees getting sick is not the only risk you face when you employ someone full-time. While they are on the clock, your employees are acting in your company’s name.
Your company is liable for the conduct of your staff in its treatment of other employees. An EPLI policy protects you from lawsuits caused by the actions of bad apples.
What Does It Cover?
It covers almost any potential lawsuit that is a result of employing (or even not hiring) someone:
- Breach of employment contract
- Wrongful termination
- Failure to employ or promote
- Sexual harassment
- Negligent evaluation
Using a Professional Employer Organization (PEO)
Many startups don’t have dedicated HR staff, making the processes involved in employee insurance and compliance a lot more challenging.
In the US, where laws vary from state to state, compliance is highly complicated. It’s often a good idea to hire some help.
A Professional Employer Organization, or PEO, is a company that hires employees on your firm’s behalf. They ensure that each new staff member is insured based on their local rights and compliant with all employment laws.
They also typically have EPLI policies, but the limits are small, and it tends to be very general. Risks that are unique to your industry or business model may not be covered well.
At Kinsta, we use JustWorks to handle all our US employees. It helps us stay compliant and ensure that all our employees get what’s rightfully theirs (and then some).
Do You Provide Tailored Services to Companies or Publish Content Online?—Errors and Omissions Insurance (Also Known as Professional Liability Insurance)
If your company provides specialized services with companies as clients, it is generally a good idea.
If your product or service directly impacts how the company generates revenue or handles sensitive information, a policy like this is a good idea. A mistake on your end that negatively impacts this is pretty much a guaranteed lawsuit.
The scope of each policy here depends on the industry’s clients and the potential errors involved.
A small startup that sells an internal collaboration tool that handles 0 sensitive information will have a completely different policy than a payment processing startup. A digital agency that consults on million-dollar campaigns will have different needs than a small design agency.
What Does It Cover?
It covers errors and mistakes ranging from bugs in code that lead to exploits and problems with a physical product—professional negligence where you fail to deliver a product or service according to the contract.
Project scope disputes where the client doesn’t feel your company delivered the final product as outlined in the original project discussions.
Critically, it also covers any accidental trademark infringements. It can help your business avoid frightening worst-case scenarios.
Leo Welder knows this better than anyone. Like a scene out of a movie, his startup choosewhat.com got sued out of the blue for trademark infringement for using the word “efax.”
If he didn’t have venture funding, that would have been the end of his business.
The website itself might not exist today if the venture funding hadn’t covered the legal costs.
After the incident had already cost the company hundreds of thousands of dollars, he opted to pay the extra few hundred dollars a year for professional liability.
A standard policy covers legal costs of up to a million dollars. Imagine how much money Leo could have saved.
Do Companies Use Your Product to Handle Sensitive Information?—Cyber Liability Insurance
Pretty much every modern startup relies heavily on the internet and data. If your company directly handles sensitive information, or your clients use it to do that, you should consider a cyber liability policy.
What Does It Cover?
This policy covers most worst-case scenarios resulting from a bug, leak, exploit, or extensive downtime. For example, legal expenses resulting from hacking, data leaks, exploits, downtime, and lost profits.
How Much Does General Liability Insurance Cost?
General liability insurance for a startup or small business typically costs between $400–$750 per year. That translates to between $42 and $92 every month.
Not a gigantic price tag for the peace of mind you get. With it, you protect your business from most basic liability lawsuits and damages.
The price tag depends on company size, risk factors, the policy limit, and the deductible.
Average Costs and Cost Range for Startups
According to Insureon, the average premium is $741, and the median is $421 per year. The average range for relevant startup industries, media, IT, and consulting lies between $505 and $640 per year.
Trusted Choice suggests $500 a year for a sole proprietor business, but up to $3,000 a year for a small consulting firm.
An early-stage startup with only the founding team, no employees, and a couple of smaller deals/clients are probably looking at a premium of $400–500 per year.
A later stage startup with more employees, bigger deals, in a higher risk industry, might end up paying $1,000–2,000 per year or more.
How Much Does a Business Owner’s Policy Insurance Cost?
A business owner’s policy insurance is a combination of general liability insurance and a commercial property policy. That makes it slightly more expensive than general liability insurance alone. But it is much cheaper than getting the two separately.
On average, a policy will cost somewhere in the range of $600–$1,200 per year for a small business.
The cost depends on annual revenue, the total number of employees, the value of your commercial property, and the risk level of your business.
According to Insureon, the average annual premium is $1,191, and the median is $636. The median for information technology companies is $540.
According to Progressive Commercial, the average cost of coverage is $1,008, and the median premium is $1,020 per year.
Early-stage startups with only a handful of employees and a tiny office will likely pay around $400–500 per year if they choose the right provider.
A later-stage startup with a fancier office, more employees, and in an industry with a higher risk of liability will pay towards the top end of $1,200 per year or above.
How Much Do Professional Liability and Errors and Omissions Insurance Cost?
Professional liability insurance, also known as errors and omissions insurance, will cost between $500 and $2,000 yearly for a small business.
This range is broad and with good reason. The price depends on the size of your contracts and potential damages related to your services.
For example, even if you are a sole proprietor, you could have a large consulting contract that has a significant potential negative commercial impact on the client. In this case, you might need a high policy limit that will increase the policy cost accordingly.
Average Costs and Cost Range for Startups
According to Insureon, professional liability insurance costs an average of $1,735 and a median cost of $713 per year. According to Progressive Commercial, their clients pay an average premium of $500–1,000 a year, and a median of $504 per year.
CoverWallet estimates that coverage costs between $1,000 and $3,000 per million dollars of coverage per year. TechInsurance lists an average range of $730 to more than $1,400 and a median of $728 per year.
A startup with a few smaller contracts or clients, and limited risk related to professional liability, will likely pay towards the lower end, between $600–900 per year. A startup with one or more major contracts with more significant potential damages should expect to pay upwards of $1,500 per year.
How Much Does Workers’ Compensations Insurance Cost?
For a startup with mostly workers that fall under the clerical/office worker category, a typical policy might lie in the $2,000–$3,000 per year range. Since the risks of injury are much lower for software developers, salespeople, and marketers than construction workers, the costs should reflect reduced risk.
The cost of workers’ compensation insurance varies from state to state. It also depends on the number of employees, total payroll, and risk category of the individual employee’s job responsibilities.
Average Costs and Cost Range for Startups
According to the National Academy of Social Insurance, the average cost per $100 of payroll varies from $0.75 (Texas) to $2.74 (Alaska).
The good news is the average cost per state is thankfully closer to one dollar ($0.98) per $100 than the highest in Alaska. Texas’ low price is just another cost-benefit to starting up in the hub of Austin (at $0.75) vs San Francisco ($1.85 in California) or even New York ($1.02).
But the variations in these numbers might also be impacted by varying representations of high-risk occupations. According to the National Council on Compensation Insurance, the cost per $100 in wages for clerical work averages out to $0.12, whereas for landscaping, a policy would cost on average $6.94 per $100.
Most startups have many more clerical workers than landscapers and painters, which means workers’ compensation policies are usually not too expensive.
In a government study from 2009, the average US employer startup had 4.1 full-time employees.
Recently, larger and more successful companies are still included under the startup umbrella, which has affected the average number of employees. But since being lean and mean is part of the definition, most self-identified startups have less than ten employees.
According to Payscale, the average salary for all startup jobs is a whopping $102,000. If you have four employees at an average wage in San Francisco and pay the state average for insurance, it would cost you $7,252 per year. The Texas average would be $2,940.
A more optimistic estimate using the numbers for clerical work, $0.12 per $100 in wages, and a $250 admin fee for the whole policy, end up at only $720 per year.
According to Progressive Commercial, the median cost of their policies is $960 per year. The average price is $1,032 per year (per company, not per employee). TechInsurance states that small tech companies can expect an average premium of $440–600 per year.
How Much Employment Practices Liability Insurance (EPLI) Cost?
Employment practices liability insurance policy typically costs between $800 and $4,000 for small businesses. An EPLI endorsement to your BOP policy will start at around $300 annually.
You might think that startups are safe and that it’s an unnecessary expense. The data says otherwise.
There has been a 400% increase in employee lawsuits in the last 30 years, and 41.5% of those lawsuits are against sub-100 employee companies.
The average cost of an out-of-court settlement is $75,000. Losing in court will cost you $217,00 on average.
Cost Range for Startups
If you have a business owner’s policy, your insurer may offer EPLI endorsements. An EPLI endorsement will add EPLI coverage to your standard BOP. It typically costs between $300–500 annually for a small business.
A separate policy for a 10–15 employee startup should be in the $1,200–2,000/year range.
A tech startup with 40–50 employees might pay up to $4,000–5,000 annually.
How Much Does Cyber Liability (Data Breach) Insurance Cost?
Cyber liability insurance policies can cost as little as $500 per year, or as much as $5,000 or more.
The cost of cyber liability insurance policies again relies heavily on the individual needs of your company. If your company handles payments or sensitive information for large corporations, you need much higher policy limits than a web designer that creates websites for small businesses.
If you electronically store or process any sensitive data, you are technically liable for any resulting damages. That’s why even small ecommerce businesses might need a policy like this.
The big differentiator here is the size of the policy or policy limit, based on the projected damages that could happen in the case of a data leak, hack, or extended downtime.
Average Costs and Cost Range
Because it is more of a niche policy, and the size policy and premiums differ significantly, there is little information.
According to Progressive Commercial, a cyber liability policy for a startup could set you back anywhere from $500 to $5,000. According to HowMuch.net, the range of quotes they received varied from $750 to $8,000.
Other sources showed ranges between $1,100 and $22,000 per annum.
If your startup directly stores credit card information or handles payments, this significantly impacts the potential costs of breaches. In these situations, the costs average out to a whopping $150 per lost record. Meaning, a policy is virtually worthless unless you opt for a large enough policy to cover most potential losses.
Which in the end, it means that average or median numbers here likely don’t tell you much about how much you’ll end up paying.
A startup that doesn’t directly handle important customer information will likely be offered premiums toward the lower end of the range between $500–1,000.
A startup that directly handles many customer records will pay annual premiums of at least $3,000–5,000.
Factors That Impact Your Insurance Costs
How much your business insurance will cost depends on many factors. The first factor is which policies you choose to employ for your business. But it’s not the only one by a long shot.
Company Size and Payroll
If you run a small startup and only work with freelancers, you can probably get away with general liability insurance. It costs a median of $500 a year for startups and small businesses.
But if you hire people full-time, you are very likely required by state law to ensure workers’ compensation. It typically costs hundreds—if not a few thousand—per employee per year. The actual amount depends on local laws and other factors.
Remember how Buffer pays 2.9% of their payroll in health insurance and workers’ comp?
Industry and Business Model and Scope of Potential Damages
Other factors are the industry that your company is in and the inherent scope of any potential liability. The worst thing a hairdresser can do is knick someone’s ear or cause an allergic reaction. The possible damages here are in the hundred dollar range.
But a development company that subcontracts for Amazon is in a very different situation. If a glitch in their deliverable causes a hack, or significant downtime, that’s millions of dollars in damages.
A B2C SaaS that saves thousands of customer records, including credit card info, is also more vulnerable.
Coverage Limit and Premiums
A coverage limit is a maximum payout from a particular policy. This limit directly impacts your insurance premium.
When working with an insurance agent, you might think they recommend an astronomical coverage limit to get a higher premium.
While that may sometimes be the case, startups are vulnerable to lawsuits and can face very costly worst-case scenarios.
You must choose limits that reflect your industry, company size, and business model.
Employee risk also impacts insurance costs for your business. Specifically, it’s a factor for your health insurance and workers’ comp policies. Most startup employees fall under the clerical work category, which is considered very low risk. Luckily, insurance policies reflect this, so insuring your office workers typically costs only a tiny percentage of their wages.
If you employ manual laborers like carpenters, you will likely pay more in insurance for those few employees than all of your clerical staff combined.
You are always subject to local state laws and regulations, impacting the necessary policies for your business and the cost.
Commercial property insurance is also heavily affected by property prices, the risk of extreme weather, etc.
Distributed Businesses Need to Uphold Local Regulations
It’s not enough to consider where your company is registered and your office’s location. As a startup, your business is likely distributed, and you probably have remote workers on the payroll.
Depending on local regulations in their states and countries, you might have to pay a different premium from employee to employee. These directly impact workers’ comp insurance, with average rates ranging from $.75 to $2.74 per 100 dollars payroll in the US alone.
Since insurance legislation differs from state to state and country to country, you might even have to offer completely different policies. It’s the one downside of a remote team (which we nevertheless strongly endorse).
But that doesn’t mean your founding team has to spend hours buried in legal documents. You can use a POE service to get these issues sorted. The extra work and risk of not being compliant after all are not worth it.
We covered all standard business insurance policies you might need and their average costs. We even gave you some estimates based on our experience.
Please remember that your business’s real insurance needs and costs aren’t something you can figure out by just reading a blog post alone. It rings especially true for distributed companies with full-time employees around the globe.
If you’re a sole proprietor working out of a home office or coworking space, and the most sensitive information you store digitally is email addresses, a general liability policy at $40–50/month is probably the only insurance you’ll need.
But if you save credit card information or consult on big contracts for tech firms, the most expensive part of your startup’s insurance portfolio will likely be the cyber liability insurance.
While covering every part of your business can set you back a few thousand dollars per year, a single data breach can cost you $86,500 or more. And if a bug in your software causes a few days of lost productivity for a major corporation, that number is peanuts in comparison.
Startups are just as vulnerable to these kinds of events as traditional businesses, so it’s essential to protect your business and assets from worst-case scenarios.