A startup’s insurance needs grow with the business. A pre-revenue company with no employees usually needs little or none. You add workers’ compensation when you hire, liability coverage when customer contracts require it, and directors and officers (D&O) coverage when you take institutional money or add an outside director. On the finance side, get a startup-savvy bookkeeper and accountant in place before your first tax return.
Key takeaways
- Nearly every state requires workers’ compensation once you have employees, and some, including New York, also require disability coverage. Company-owned vehicles need auto coverage too.
- Enterprise customer contracts often require general liability, errors and omissions (E&O) and cyber coverage at set limits.
- D&O is usually required by priced-round investors and expected by outside directors.
- Answer insurance applications accurately; misstatements can void coverage.
- Hire an accountant with startup experience, and ask about R&D tax credits early.
What insurance does a startup need at each stage?
| Stage | Coverage to consider |
| Formation, no employees | Usually none required. General liability if you have an office, events or physical products. |
| First employee | Workers’ compensation, plus state disability and paid leave coverage where required (New York requires them from the start). |
| First enterprise customer | General liability, E&O (professional liability) and cyber at the limits the contract requires, often $1 million to $2 million. |
| First priced round or outside director | D&O. Investors usually require it as a closing condition or soon after. |
| Growing team | Employment practices liability (EPLI) and an umbrella policy. |
Regulated industries such as health care and financial services may have specific requirements earlier. Companies selling physical products need product liability coverage before launch.
What do the main policies cover?
General liability covers claims of bodily injury or property damage arising from your premises or operations. E&O, also called professional liability, covers claims that your product or service failed or was performed negligently, which is the core risk for most software and services startups. Cyber coverage pays for data breach response and related liability. See Data Breach: The Risks for Early Stage Startups.
D&O protects directors and officers personally, and the company, against claims over management decisions, including claims by investors. EPLI covers employee claims of discrimination, harassment or wrongful termination. Umbrella or excess coverage sits above other policies when a claim exceeds their limits.
Key person insurance pays the company if a founder or other key person dies or becomes disabled. Some companies, especially LLCs, use it to fund a buyout of the departing owner’s interest under a buy-sell provision.
When do I need D&O insurance?
Not at formation. D&O becomes important when you take institutional investment or add an independent director. Outside directors often won’t join a board without it, and priced-round term sheets commonly require it. See How Do I Build an Early-Stage Startup Board?
The application will ask about your financial condition, pending claims and known problems. Answer accurately. A misstatement can let the insurer deny coverage when you need it. D&O, E&O and cyber policies are usually written on a claims-made basis, which means they cover claims reported while the policy is in force, and they set conditions on how and when you give notice. Tell your broker as soon as you learn of a potential claim, even a demand letter, so you don’t lose coverage on a technicality. When a company winds down, buy a “tail” (run-off) policy so directors and officers stay covered for claims made after the policy ends. See How Do I Shut Down My Startup?
How do I buy startup insurance?
Work with a startup-focused broker who can place several policies at once and knows what investors and enterprise customers ask for. Ask how the broker is paid. Most earn a commission built into the premium, and some charge a fee instead. Share the insurance clauses from your customer contracts so the limits match. Review coverage at each new stage on the table above and at every renewal.
What does a startup accountant do?
A good accountant (often working with a bookkeeper) keeps your books accurate, prepares federal and state tax returns, handles payroll tax setup, and gives you financial statements investors can rely on. They can also advise on tax planning, including R&D tax credits and how your R&D costs are treated for tax purposes, which can matter a lot for software companies. Those are questions for your accountant or tax advisor.
How do I find an accountant who works with startups?
Look for someone who already works with venture-backed or early-stage companies and understands cap tables, SAFEs, stock compensation and Delaware franchise tax. Ask other founders and your investors for referrals. In the US, confirm that whoever signs your returns is a Certified Public Accountant (CPA) or other authorized preparer. Meet a few candidates before choosing, and pay attention to how clearly they explain things and how quickly they respond.
For an early checklist that includes insurance and accounting, see What Should I Do in the First 30 Days of My Startup? and Employee Onboarding for Startups. If you’d like help reviewing the insurance requirements in a customer contract, contact us.
