This article was written by our expert who is surveying the industry and constantly updating the business plan for a startup.
Our business plan for a startup will help you build a profitable project
Starting a business requires various types of insurance to protect against financial losses and legal liabilities.
The cost of insurance for startups typically ranges from $400 to $10,000 annually, depending on your industry, size, and coverage needs.
If you want to dig deeper and learn more, you can download our business plan for a startup. Also, before launching, get all the profit, revenue, and cost breakdowns you need for complete clarity with our startup financial forecast.
Insurance costs for startups vary significantly based on industry, company size, and coverage types. Most startups spend between $400 and $10,000 annually on insurance, with tech companies averaging $3,000-$5,000 per year.
Workers' compensation and commercial auto insurance are legally required in most states, while general liability, professional liability, and cyber insurance are strongly recommended optional coverages for most startups.
| Insurance Type | Average Annual Cost | When It's Essential |
|---|---|---|
| General Liability | $400-$750 | Required by most landlords and clients; covers bodily injury and property damage claims |
| Workers' Compensation | $540-$3,000 | Legally required in most states once you hire your first employee |
| Professional Liability (E&O) | $600-$2,000 | Essential for service-based startups, consultants, and SaaS companies |
| Cyber Liability | $1,700-$1,800 | Critical for tech startups and any business handling sensitive customer data |
| Directors & Officers (D&O) | $1,000-$2,500 | Often required by investors after funding rounds to protect leadership |
| Business Owner's Policy (BOP) | $600-$1,200 | Cost-effective bundle for small startups with physical locations |
| Commercial Auto | $1,764-$2,375 | Mandatory if your startup owns or leases vehicles for business use |
What insurance is legally required for startups in the United States?
The insurance requirements for startups depend on your state, business structure, and whether you have employees.
Workers' compensation insurance is mandatory in nearly every state once you hire your first employee, covering medical expenses and lost wages for work-related injuries. Commercial auto insurance becomes legally required if your startup owns or leases vehicles for business purposes, with coverage minimums varying by state.
Some states also require unemployment and disability insurance for businesses with employees. While general liability insurance isn't typically required by law, it's often mandated by landlords for lease agreements and by clients before signing contracts.
You'll find detailed market insights in our startup business plan, updated every quarter.
Most startups should budget at least $540-$3,000 annually for workers' compensation alone, depending on payroll size and industry risk factors.
What optional insurance do startups need most, and when?
Optional insurance becomes essential based on your startup's specific risks, industry, and growth stage.
General liability insurance ($400-$750/year) protects against third-party bodily injury and property damage claims, making it crucial for any startup with a physical location or client interactions. Professional liability insurance ($600-$2,000/year) is critical for service-based startups, consultants, and SaaS companies to protect against claims of negligence or mistakes in professional services.
Cyber liability insurance ($1,700-$1,800/year) has become essential for tech startups and any business handling sensitive customer data, covering data breaches and cyberattacks. Directors & Officers insurance ($1,000-$2,500/year) is often required by investors after funding rounds to protect company leadership from personal liability.
For startups manufacturing or selling physical products, product liability insurance provides crucial protection against defective product claims. Employment Practices Liability Insurance (EPLI) becomes important as you scale your team, protecting against wrongful termination or discrimination claims.
How much does each type of startup insurance cost?
Insurance costs for startups vary based on coverage limits, deductibles, and business specifics, but here are typical ranges.
| Insurance Type | Monthly Cost | Annual Cost | Typical Coverage |
|---|---|---|---|
| General Liability | $30-$55 | $400-$750 | $1M per occurrence, $2M aggregate |
| Workers' Compensation | $34-$70 | $540-$3,000+ | State-mandated minimums based on payroll |
| Professional Liability (E&O) | $50-$91 | $600-$2,000 | $1M-$2M typical limits |
| Cyber Liability | $140-$150 | $1,700-$1,800 | $1M-$5M depending on data sensitivity |
| Business Owner's Policy | $57-$100 | $600-$1,200 | $1M/$2M or higher limits |
| Directors & Officers | $70-$150 | $1,000-$2,500 | $1M-$5M typical for startups |
| Commercial Auto | $147-$198 | $1,764-$2,375 | $1M typical liability limit |
| Employment Practices (EPLI) | $75-$125 | $900-$1,500 | $1M-$2M for most startups |
How do startup size and stage affect insurance costs?
Your startup's growth stage directly impacts both insurance requirements and costs, with premiums typically doubling or tripling as you scale.
Pre-revenue and early-stage startups often need only general liability and property insurance if leasing space, with annual costs as low as $400-$1,000. These startups typically choose minimum coverage limits since they have limited assets to protect and minimal operational risks.
Scaling startups see insurance costs increase by 150-200% as they add employees, expand locations, and increase revenue. Workers' compensation becomes mandatory with the first hire, and professional liability becomes crucial as client contracts grow. Annual insurance costs at this stage typically range from $3,000-$7,000.
This is one of the strategies explained in our startup business plan.
Mature startups with significant funding, multiple locations, or international operations often spend $7,000-$10,000+ annually on comprehensive coverage including D&O, EPLI, and higher liability limits to protect substantial assets and satisfy investor requirements.
What coverage levels should startups choose?
Selecting appropriate coverage levels requires balancing protection needs with budget constraints while meeting contractual obligations.
For general liability, most startups choose $1 million per occurrence and $2 million aggregate limits, which satisfies most lease and client contract requirements. Professional liability typically starts at $1 million per occurrence with $1-2 million aggregate, though tech startups handling sensitive data often need higher limits.
Cyber liability coverage should reflect your data exposure - startups handling minimal customer data might choose $1 million limits, while those processing payments or storing sensitive information typically need $3-5 million. Workers' compensation follows state-mandated minimums based on payroll, while D&O insurance usually starts at $1 million but increases to $3-5 million after funding rounds.
When deciding coverage levels, assess your maximum potential loss from a single incident, review all contract requirements from clients and landlords, and consult with an insurance broker who understands startup risks. Consider starting with standard limits and increasing coverage as your startup grows and accumulates more assets to protect.
What factors affect startup insurance premiums most?
Insurance premiums for startups are influenced by multiple risk factors that insurers evaluate when setting rates.
- Industry and business type - High-risk industries like construction or food service pay significantly more than low-risk tech or consulting startups due to greater liability exposure.
- Number of employees and payroll size - More employees mean higher workers' compensation costs and increased liability risks, directly impacting premiums across multiple coverage types.
- Annual revenue - Higher revenue typically indicates more business activity and client interactions, leading to increased liability exposure and higher premiums.
- Location factors - Operating in areas with high crime rates, natural disaster risks, or expensive legal environments increases premiums for property, liability, and other coverages.
- Claims history - Previous claims, even from prior businesses, can increase premiums by 20-50% as insurers view you as higher risk.
- Years in operation - New startups pay more than established businesses due to unproven track records and higher failure rates.
- Risk management practices - Implementing safety protocols, employee training, and cybersecurity measures can reduce premiums by demonstrating proactive risk reduction.
How do insurance costs vary by industry?
Industry type significantly impacts insurance costs due to varying risk profiles and liability exposures across different business models.
SaaS and tech startups typically pay $363-$500 annually for general liability but face higher cyber liability ($1,700-$1,800) and professional liability ($1,094) costs due to data breach risks and potential service failures. Their workers' compensation costs remain low at around $480 annually due to office-based work.
Retail startups face moderate costs with general liability at $400-$750 and workers' compensation at $540-$840 annually, but need additional property coverage for inventory and equipment. Food service startups pay premium rates with general liability at $525, workers' compensation at $1,272, and often require additional product liability and liquor liability coverage.
We cover this exact topic in the startup business plan.
Manufacturing startups face the highest costs with general liability at $530, workers' compensation at $1,800, and substantial product liability requirements due to the physical risks of production and potential product defects.
Which insurance providers are best for startups?
Several insurance providers specialize in startup coverage, offering tailored packages and competitive rates for growing businesses.
| Provider | Specialties | Why Startups Choose Them |
|---|---|---|
| Embroker | Startup-focused packages, D&O, cyber | Custom bundles for tech startups, streamlined online process, competitive rates for funded companies |
| The Hartford | Customizable BOP, general liability | Strong reputation, flexible payment options, excellent small business resources and risk management tools |
| Hiscox | Professional liability, cyber insurance | Specializes in tech and professional services, quick online quotes, strong coverage for data breaches |
| Next Insurance | Digital-first policies, quick coverage | Instant online quotes, monthly payment plans, AI-powered underwriting for faster approvals |
| Chubb | High-limit coverage, international | Global presence for international startups, high AM Best ratings, comprehensive coverage options |
| Vouch | VC-backed startup insurance | Understands startup needs, offers coverage that scales with growth, preferred by many VCs |
| CoverWallet | Small business bundles | Compare multiple carriers, dedicated advisors, good for comparing options across providers |
What insurance do startups with remote employees need?
Startups with remote or international teams face unique insurance challenges requiring specialized coverage beyond standard policies.
Cyber liability insurance becomes absolutely critical for remote startups, as distributed teams increase data breach risks through multiple access points and home networks. Coverage should be at least $3-5 million for startups with fully remote teams handling sensitive data.
Workers' compensation gets complex with remote employees, as you must comply with insurance requirements in each state where employees work, not just your headquarters location. International health and travel insurance becomes necessary for employees working abroad, along with foreign general liability for any international operations or sales.
Global D&O and EPLI coverage protects leadership from lawsuits across jurisdictions, while professional liability must extend to cover services delivered internationally. Many startups also add employer's liability insurance to cover gaps in international workers' compensation requirements.
Which insurance add-ons should startups skip?
Not all insurance add-ons provide value for cash-strapped startups, and some can be safely skipped to reduce costs.
Extended warranties and equipment breakdown coverage for low-value assets rarely justify their cost, as replacing basic office equipment is often cheaper than premium payments. Flood and earthquake insurance in low-risk areas can be skipped unless required by lenders or landlords.
Excessive riders for unlikely scenarios, such as terrorism insurance for small startups or employment dishonesty coverage for companies with minimal cash handling, provide little value. Very high coverage limits beyond your actual asset value or contractual requirements waste money that could be invested in growth.
Identity theft protection for the business, glass coverage for minimal storefront exposure, and business income insurance for pre-revenue startups are commonly oversold add-ons. Focus insurance spending on coverage that protects against realistic risks that could threaten your startup's survival.
How much can startups save with bundled insurance?
Bundled insurance packages offer significant savings and simplified management for startups needing multiple coverage types.
Business Owner's Policies (BOPs) combine general liability and commercial property insurance at 10-20% discounts compared to purchasing separately, typically saving startups $100-$300 annually. These policies work best for small, low-risk startups with physical locations.
Startup-specific packages from providers like Embroker and Vouch bundle D&O, E&O, EPLI, and cyber insurance with savings of 15-25% versus individual policies. For a typical tech startup, this could mean saving $500-$1,500 annually while simplifying renewal and claims processes.
Beyond cost savings, bundled policies offer streamlined administration with single renewal dates, unified claims handling, and consistent coverage terms. However, carefully review bundle components to ensure you're not paying for unnecessary coverage, and compare total costs against your specific needs.
How should startups forecast insurance expenses?
Accurate insurance forecasting helps startups budget appropriately and avoid cash flow surprises as they scale.
Start by estimating 5-7% of gross revenue for total insurance costs as a baseline, then adjust based on your specific industry and risk profile. Tech startups might budget 3-5% while manufacturing or food service startups should plan for 7-10% of revenue.
Get expert guidance and actionable steps inside our startup business plan.
Itemize each coverage type based on your growth stage - pre-revenue startups might need only $400-$1,000 for basic coverage, while Series A companies should budget $5,000-$10,000 for comprehensive protection. Factor in employee growth, as workers' compensation and EPLI costs scale directly with headcount.
Get quotes from multiple providers and update your model quarterly as your business evolves. Build in 10-15% annual premium increases and additional coverage needs as you hit growth milestones like first employee, first major client, or funding rounds.
Conclusion
This article is for informational purposes only and should not be considered financial advice. Readers are encouraged to consult with a qualified professional before making any investment decisions. We accept no liability for any actions taken based on the information provided.
Insurance represents a critical but manageable expense for startups, typically ranging from $400 to $10,000 annually depending on your industry and growth stage.
By understanding which coverages are legally required versus optional, comparing providers, and leveraging bundles where appropriate, startups can obtain adequate protection without overspending during crucial early growth phases.