Five Ways to Save Your Startup with Insurance

“I particularly remember the moment I realized my company was going to fail. My co-founder and I were at our wits’ end… If you’ve never experienced a failure like this, it is hard to describe the feeling… you realize you’ve been duped. The stories in the magazines are lies: hard work and perseverance don’t lead to success.” — Eric Ries(2011)

Entrepreneurship is hard. Very hard. To survive in its cut-throat environment, with every odd imaginable stacked against you is not for the fainthearted. But I guess you’ve heard this before.

I guess that you’ve also probably read somewhere that 90% of all startups are likely to fail. And yours, of course, is not exempt.

But here you are, building a new business and hoping to hit the million dollar mark soon.

Why?

Why would you keep investing time, dollar and faith in something that has a 90% chance to fail?

I’ll tell you why.

You love to build. You love to solve problems. You want to change the world. Which is great. Which is why you set out on this mission, hoping that with killer ideas, passion or even a great business model, you could change the world.

But ideas alone, no matter how great, are insufficient. This is what Neil Patel, entrepreneur and author, understood when he wrote, of the failed startup, Dijiwan, “They overlooked key aspects of business process and the ‘boring stuff’… small things can turn into large things. Some of the most important components of a startup are those perky issues of business process, business model and scalability.”

And Insurance completes this mix.

Every business is exposed to a variety of risks and liabilities. Although all risks are not created equal, many can cause delay or halt operations, distract managerial focus, weaken your financial capacity and kill the business. From structural, property and employee risks, to product liability and lawsuits, the damage can be severe.

A safety net to fall back on when emergencies threaten to ruin your efforts is, therefore, the only remedy. And that safety net is a balanced insurance program.

Who says you are insured?

Buying insurance is not the same as getting adequate coverage. Many entrepreneurs are under insured or paying for the wrong policies. Not only can this mar your ability to survive financially when uninsured accidents happen, you can lose your business for something that has nothing to do with a bad business model or a failing idea.

What can be worse than that?

Is insurance expensive for entrepreneurs?

All risks are not created equal. If the risks are minimal, you can choose to bear the financial costs for certain damages by retaining risks or avoid it by being really attentive.

However, any risk that can put an end to your entrepreneurial dreams should be insured against.

5 ways that you can benefit from buying the right Insurance coverage.

1. Reduced health concerns.

Being an entrepreneur exposes you to a myriad of health and emotional challenges.

Striving to make a profit out of a difficult market, in extreme conditions, dealing with temporary failure and taking on huge risks is likely to have a toll on you more than you even know.

In this article, Tolu Ajiboye, writer and contributor at The Entrepreneur, refers to a research conducted by Michael Freeman, clinical professor at the University of California, San Francisco where 49 percent of entrepreneurs were discovered to have one or more mental health conditions.

Entrepreneurs, by the nature of the work they engage in, are very susceptible to health problem. But you can stay insured against health risks by adopting healthy living habits and buying the right health insurance coverage.

2. Protection against business liability.

Whether your business operates from your home or not, you need insurance to protect liabilities that may accrue to the business during its operations.

This is because your standard homeowner’s insurance policy is not designed to cover for any liability related to home business activities so it is dangerous to assume or overlook this when operating from your residence.

You should also consider that personal liability policies have limitations that exclude your business liability from coverage. Even, umbrella policies do not cover business-related risks.

You must, therefore, buy a good business insurance policy to insure your business against structural risks, business property risks, employee injuries and risks, products liabilities, lawsuits, vehicle and human risks.

3. To keep your loved ones safe.

Addressing the reality that you may die affords you the opportunity to support your family and loved ones when the unexpected happens and you, along with the money train, disappear.

You don’t need to have a family of your own to buy life insurance. What you should be concerned about is whether there are people dependent on you for their financial upkeep.

If there are, you should buy life insurance.

4. You can keep working.

Being disabled and unable to work, whether for a short-term or long period, can have very negative effects on your business. Even worse, it can kill your resolve to succeed when your income stream suddenly dries up.

There is only one way to avoid this: getting insured against disability.

5. You can be insured against under insurance.

Every Entrepreneur should take advantage of the Personal Umbrella Policy. With this, you get additional defense coverage, higher coverage limits for liabilities and security against gaps in your primary insurance policy.

Ironically, it is not advisable to buy any umbrella policy that the insurance company offers you. Not all umbrella policies cover the same risks.

It would be safer to consult a good insurance agent before making a choice.

Exclusions and Limitations: Figure out what it is that you are buying.

You should never buy an insurance policy out of assumption or only through word of mouth. Your policy must be tailored to cover your risks, which may be quite different from what your friend’s risks are.

Buying the right insurance coverage means hiring the best insurance agent to help you make the right decisions. It also means making only informed decisions when choosing whether to buy an insurance coverage or take it higher.

Here are four tips to keep in mind before buying any policy:

• Only hire the best insurance agents. It is their job to identify coverage gaps and advise you on how to insure the most dangerous risks.

• Have a financial plan and goal, assess the risks that you are exposed to while trying to achieve your goal.

• If you have life insurance, ensure that your spouse or any one financially dependent on you is aware.

• Buy an umbrella policy to cover for your personal coverage gaps.

• Do not insure properties that you can afford to lose. If your business properties are easily replaceable, especially if your startup is still young and you are not confident that it may survive, you may close the lid on insurance. Adopting a careful, risk-evasive attitude may be more beneficial instead.

A good insurance program might just be the difference between your startup surviving or failing.

Sources

Ries, Eric(2011).The Lean Startup. New York: Crown Publishing Group.