As a startup founder, one of the primary responsibilities is to minimize and mitigate risks associated with the unpredictable nature of business. Although getting business insurance is rarely at the top of any entrepreneur’s list, it must be said that insurance is a powerful tool to safeguard your startup from a wide range of uncertainties. It provides a safety net and helps provide a clear roadmap to navigate murky situations when they arise.
In fact, two-thirds of repeat entrepreneurs get insurance in place very early on in their next business.
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Types of Insurance for Businesses in Canada
In Canada, various types of insurance cover a wide range of circumstances in the life cycle of a start-up. However, not all businesses require the same set of insurance. Depending on which industry and the type of operation you are running, you may need your insurance packages tailored to your advantage.
For example, an online business must prioritize Cyber Liability Insurance; if your startup wants to raise funds through investors, you may be expected to have Directors and Officers insurance. If your business requires a business loan from a bank, the bank may have certain types of insurance in its eligibility criteria.
Here is a comprehensive list of the different types of insurance you should ask your Insurance Agent or provider about before finalizing your startup insurance.
1. Commercial General Liability (CGL) Insurance
CGL insurance is there to help your startup if your business is on the receiving end of a third-party bodily injury or property damage claim or lawsuit. This is when someone accuses your business, service, or product of causing harm to them or damaging their property. It covers costs like legal fees and any money you may have to pay to the injured person or their property.
Estimated Cost: Annual average cost range from $500 – $1000
Coverage: Up to $2M (can vary)
2. Commercial Property Insurance
Commercial property insurance offers financial protection for your start-up by covering damages or losses to the physical space you use, such as offices, stores, or storage areas. It also includes coverage for valuable assets inside, safeguarding against theft or damage resulting from unfortunate incidents like vandalism, robbery, fire, or natural disasters like hurricanes, earthquakes, or floods.
Estimate Cost: $83 to $250 per month
Coverage: Up to $1M (can vary)
3. Business Interruption Insurance
In the case of an unexpected event like a fire, flood, earthquake, or any other calamity, if your company is forced to stop operations temporarily, business interruption insurance covers your lost income.
Estimate Cost: Starts from $100 a year
4. Vehicle Insurance
If your start-up has company vehicles, you must have separate auto insurance for each.
Estimate Cost: Roughly from $1000 – $2000 a year
5. Professional Liability Insurance
Professional liability insurance, or errors and omissions (E&O) insurance, is for startups offering professional or consulting services. This insurance provides protection against claims of negligence, service failures, or losses suffered by clients due to your services.
Estimate Cost: Roughly from $150 – $2000 a year
6. Cyber Liability Insurance
If you have an online business with a website, e-commerce store, or POS system that runs the risk of becoming victim to a cyber-attack, ransomware, a phishing attack, or data breach, cyber liability insurance helps cover costs for system damage, restoration, legal fees, credit monitoring, losses from system outages, and recovery expenses
Estimate Cost: Roughly from $550 – $1000 a year
Average Claim: $295,0000
7. Directors and Officers (D&O) Insurance
This type of insurance protects your board members and company leaders in case they are involved in a lawsuit accusing them of negligence, breaching their duties, or violating laws at the provincial or federal level. Potential VCs in the start-up ecosystem may expect D&O coverage.
Estimate Cost: Roughly starts from $400 per year
Coverage: Up to $1M (can vary)
8. Legal Expense Insurance
Legal expense insurance provides your startup access to experienced lawyers and covers the costs of legal counsel when you need it. This is especially helpful for businesses that don’t have internal legal teams.
Estimated Cost: $200 per year
Generally, most providers or brokers can offer packages that may include some or all of the above insurances for your startup.
How to select an Insurance provider for your start-up in Canada
Going through an insurance broker benefits a startup because they can tailor and negotiate good deals for you and your company. To find the right broker, here are some suggestions on how to get started:
Seek recommendations: Insurance is a sensitive matter; always start with your trusted network for suggestions.
Check ratings and reviews: Read through reviews from past customers to gauge the broker’s reputation.
Verify qualifications: Ensure the commercial insurance broker is licensed and qualified, holding necessary credentials from Canadian regulators. All insurance brokers or providers in Ontario must be licensed with the Financial Services Regulatory Authority of Ontario (FSRA).
Startup experience: It would be a bonus if the broker or organization is specialized in startup insurance within your industry. They would already have strong know-how and connections within their network to get you the best offers.
What to discuss with your Insurance Broker/Provider?
- Start with the basics: Understand the basic coverage you require as a start-up in your industry.
- Customize: Ask them to collect various quotes, and discuss exclusions, deductibles, and liability limits to ensure you aren’t over-spending on insurance prematurely, nor are you opening up your company to too much risk.
- Read the fine print: Regardless of how much you may trust the broker, never forget to read the fine print yourself and ask as many questions before signing any insurance policy.
- Discuss broker’s fees: Make sure to ask about their fees and how they are paid.
Depending on where you are at your business and your future trajectory, you may need to start planning your insurances at the early stages of your business. Sometimes lack of insurance can even impact your opportunities for a bank loan or a VC investment. Prioritize business insurance for your startup in Canada as soon as possible to future-proof yourself in the long term; it is definitely better to be safe than sorry and swimming in legal debt.
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