A recent study conducted by SmartAsset revealed that nine of the top 10 cities with lowest startup costs were in the South, including Chattanooga. With these low costs, it's easy to see why the Southeast is a budding hotbed for entrepreneurs and startups looking to become the next big thing.
Accelerator programs, like Launch Tennessee in Nashville. and CO.LAB in Chattanooga, mentor and guide these individuals on business plans, funding, testing and more. But what about the types of insurance that startups need?
Startups typically have less than 100 employees, and can easily buy into the misconception that they're too small for policies outside the standard commercial general liability (CGL) insurance. Others naively believe that CGL insurance is an all-encompassing solution.
CGL insurance is a basic business insurance policy that covers any general claims of injury or property damage. It does not extend to things like workers' compensation or cyber attacks. In such an event, your company could be left exposed.
Below are four types of insurance to protect and cover your startup's you-know-what.
Employee Practices Liabilities (EPL) Insurance
If you have employees or plan on making a hire anytime soon, EPL insurance is a must. It protects your company against legal issues stemming from employee-related matters, such as discrimination, wrongful termination, retaliation, harassment and disputes about salary or hours worked. Even if you're not at fault, it can be costly to resolve an EPL issue if a claim is brought against your company.
In a startup environment, it can be hard to justify purchasing EPL insurance - team members often feel more like family in such a small workplace. This kind of thinking is dangerous and may be the reason that not even 2 percent of small businesses purchase EPL coverage. Unfortunately, Business Insurer Munich Re found that more than 50 percent of all EPL claims are aimed at companies with fewer than 50 employees.
Commercial Property Insurance
Commercial property insurance is available to business owners whether they own, rent or lease the physical space they're operating in. Under such a policy, companies are protected against damage caused by events like natural disasters, fires or break-ins. Physical items in the office, including hardware and software, important prototypes and inventory, are also included in the coverage. Think of it as being similar to a homeowner's policy for businesses.
Cyber Liability Insurance
Do you work as a vendor for a larger company? Do you regularly deal with sensitive information, including health or medical records, credit card numbers or social security numbers? You could be a target for online criminals.
According to the National Small Business Association, half of all small businesses report that they have experienced some kind of cyber security event. Surprisingly, individual or company negligence is among the top causes of these data breaches around the world. In the event that your company experiences such an attack, cyber liability insurance would cover things like legal fees, costs associated with notifying the individuals affected and crisis management.
Workers' Compensation Insurance
Whether you have 700 employees or three, accidents happen. A workers' compensation policy will ensure that you can pay an employee's wages and/or medical costs in the event of a workplace injury. Without it, you could be stuck footing the bill.
Running a business is expensive enough. The last thing you need is the stress of dealing with unexpected costs. Protecting your startup now could save you thousands of dollars down the road.
Parker Rains, a Chattanooga native, is vice president of middle market business insurance firm, Fisher Brown Bottrell Insurance, which is a wholly owned subsidiary of Trustmark National Banks. Rains is available at prains@fbbins.com