“Purchasing insurance is the most exciting aspect of running your own business!” 
—Nobody Ever
 
The topic of business insurance elicits a serious groan from most entrepreneurs. After all, there’s that whole “building your business” thing that most would rather be doing. However, business insurance is an important piece of the puzzle: if times get tough or the unthinkable happens, an uninsured company may never see the light of day again. But with the proper insurance policies in place, you’ll weather the darkest storms with ease.
 
Buying insurance doesn’t have to be a pain. We’ll be your risk mitigation guide on your policy-purchasing journey. Here we go:

1. Get the recipe

Picture this: your in-laws are coming to town and you want need to impress them...and why not with a fancy, delicious meal? You bounce some ideas back and forth with your significant other and land on cooking, amongst other courses, a soufflé. But you’re no expert baker, so how do you even get started?
  • butter
  • cheese
  • egg
  • vanilla
This conundrum is very similar to starting your insurance purchasing process. How do you even get the ball rolling here? While you don’t need to become an expert, you should have at least some sense of what kind of products are out there and what might be good for you. Here’s a quick cheat sheet of some of the important most important policies for your business: 
 
General Liability Insurance: GL insurance covers 3rd party claims for bodily injury and property damage. You will need this when:
  • Your restaurant’s coffee severely burns the roof of a patron’s mouth, ending in a trip to the hospital.
  • When moving out, your old landlord demands reimbursement for the scratches your not-so-rolly chairs made on the office floor.
These two make sure employees are covered should they get injured on the job. Some states require companies to purchase independently and others will include with employment taxes. Either way, running payroll without these in place is a big no-no.
 
Errors and Omissions Insurance: Known as malpractice insurance in many industries (medical, legal), E&O insurance covers allegations that you’ve failed to render your professional service. This covers you when:
  • Your sales and marketing software platform malfunctions for a few days, costing your users a ton of lost sales
  • You’re a credentialed professional (doctor, lawyer, financial advisor) and your client accuses you of malpractice
  • You act as a consultant and customers sue when unsatisfied with your alleged bad advice
Cyber Liability Insurance: Cyber insurance covers the costs related to a data breach scenario. You need this when:
  • Maliciously or accidentally, someone takes or leaks customers’ personal information. Even just a full name and email can be enough to warrant legal action! You’ll have notification costs, lawsuits, forensic costs to see what went wrong, and more. The cold hard fact: 90% of data breaches affect small businesses.
Directors & Officers Insurance: D&O insurance covers directors and officers for claims arising from decisions they make when running the organization. You need this when: 
  • Investors accuse you of mismanaging the company
  • The SEC accuses you of reporting errors when you sold off a piece of the company to investors
  • The EPA accuses you of a violation of a regulation around trash disposal (government organizations tend to personally name directors/officers)
Employment Practices Liability Insurance: EPL insurance covers claims against the company, directors, officers, or employees for employment disputes: discriminatory hiring/firing, sexual harassment, wrongful termination, etc. You need this when:
  • You let an underperforming employee go and they turn around and sue the company for employment discrimination based on their age
  • A prospective hire accuses the company of giving the job to another candidate based on race
Key Person Insurance: Key Person insurance is a life insurance policy that pays out to the company if the insured individual (usually a founder or executive) embarks on the most permanent of “offsites.”
 
This should give you the taste you need to move forward. Once you decide on what to serve—a soufflé—a Google search will give you an idea of the options for each type of policy.
chef

2. Find your chef

Soufflé prep is complicated. For a high stakes in-law dinner like this, it’s best to leave the prep work to the pro. That’s your insurance broker.  
 
The truth is that once you do some research, you’ll probably find way more nuance than you bargained for. While it’s good to grasp the basics, a good broker will know exactly how to beat the eggs so that everything rises properly. That’s what they’re paid to do! 
 
The best thing you can do is choose the right broker. But how do you do that? 
  • Find a specialist: You wouldn’t hire a pastry chef to cook the main course, right? Successful brokers specialize and work to become the master of their niche. Find a specialist brokerage and vet their expertise with questions about your model/industry. Better yet, pay close attention to whether or not they are asking you the right questions. If they understand the model and space, they’ll likely be a great partner.
  • Use references: Make sure to check with the broker’s current clients if possible. Ask investors or fellow entrepreneurs for their two cents. You’re choosing a partner here, not just a generic service provider.
  • Check the style: “Different strokes for different folks” applies to the insurance space. Brokers will approach the process in various ways. Understand how your broker handles the application process and provides support functionality. Think about what you’d like: digital or in-person experience? Dedicated rep or brokerage-wide support structure? Make sure your preferences are in sync with your broker’s methods.
  • Commit: Choose wisely and stick with it. Switching brokerages and approaching multiple at the same time can be a huge pain and cause more problems than it’s worth.
  • ice cream cone
  • creme brulee
  • flan dessert
  • chocolate cake

3. Hit the test kitchen

Your broker has presented you with an insurance proposal. This is the point where you taste test, critique, and tweak the dish. Don’t say yes just because the powdered sugar on top looks like the logo for your father-in-law’s favorite baseball team. Make sure you ask lots of questions. Probe. Be critical. Get to the bottom of it. You want what’s best for your company, don’t you? 
 
Insurance quotes and policies are notoriously hard to read. Your broker should shine in interpreting for you, but here’s a bit of ammunition to guide your critique:  
  • Limit(s) of Liability: The size of the pie. These are the meat of the proposal and will define how much coverage you actually get from the policy. The “occurrence” limit is the max payout for any one claim situation and the “aggregate” limit is the max the policy will pay out over the course of its life (usually one year). As with most things, bigger generally costs more. Higher limits mean you’ll pay higher premiums.
  • Retention: The unique word for “deductible” on some business insurance policies. This is the slightly burnt tongue on that first bite: how much you pay out of pocket per claim before the limits of liability kick in.
  • Carrier Status / Rating: The quality of the ingredients. Check the carrier’s A.M. Best rating. It’s a letter grade system much like your middle school report card. The higher, the better, although you should usually look for an A- or higher. It’s also worth checking the carriers “Admitted” or “Non-admitted” status which indicates if the carrier is backed by the state.
  • Payment terms: The terms will be direct bill (from the insurance company) or agency bill (from the insurance broker). General Liability policies will typically be direct bill. E&O, Cyber, D&O, and EPLI policies will be agency bill. Direct bill policies are more likely to have payment plan options and agency bill policies usually require cash or check up front (or credit card with Founder Shield!)
cupcake dessert

4. Execute and serve hot

Congrats! You’ve nailed the dish and dinner was a success. Check that box and move on. Our culinary adventure has come to a close…or has it? 
 
As a business owner, you know there is always room to improve. Better marketing materials. Better products. Better customer service. The list goes on forever. 
 
Insurance shouldn’t slip into the background either. As your business grows and changes, so does your risk profile. You’ve worked hard to find the right broker for your company, so put them to use! Stay in contact and make sure your broker is up to date when major changes happen. What kind of “major” changes, you ask? Here are some examples:
  • Location changes–moving offices, adding retail locations, new warehousing partnerships, etc.
  • Purchases of new equipment / business personal property
  • Change in the ownership of the company (usually anything greater than a 50% change)
  • Pivot / change in operations
  • Creation / acquisition of new subsidiaries
  • Launch of new product lines
Keep your recipe up to date and your ingredients fresh. It takes minimal effort and goes a long way to making your company a long-term success!
Founder Shield logo
This article was provided by Founder Shield. Founder Shield was created with one goal: to take the stress out of buying insurance for venture-backed startup companies. 
 
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