What kind of insurance do online startup companies need?
3 Answers
[With emphasis on product liabilities]
Is there a standard list that shows the type of insurance online software companies need?There is no such list, or if someone made it, it would be bogus. There is no one-size-fits-all answer to this. If you want a good answer, then you should go see a lawyer, a insurance specialist, and some entrepreneurs in your area of business, and then make a business decision yourself. Some of the input factors into this decision would be:
- The laws you're subject to. Some countries (and US States) are more litigious, other countries less so.
- The value of your service, both in terms of the price and the end users perception. A 9$ per year photo album service is less at risk; enterprise data encryption software is more at risk.
- How good protection you can build into your Terms of Service and related legal documents.
- Which protection (if any) you are building into your corporate structure. (Fx many companies create overseas subsidiaries to handle all overseas sales, to compartmentalize legal risks.)
- Your own personal tolerance for risk. To be clear, you should make sure the risk to your person is near-zero. But there will always be a risk to the business in which you have invested time, money and energy.
Having said that, if it is a lower-risk service (low price, less important user data, standardized and well-shielding terms of service) and the service is provided by a corporation (a legal persona different from your person), then I would personally be OK with operating without any insurance for a while, until the business model is showing good traction. Just don't forget to clean up this, i.e. get good counseling and change things if needed once you begin to have some revenue. This can be tricky, because if you're getting business traction, then you will typically also be very very busy, and may not find the time to revisit legal matters.
Talk to a decent (hard to get, I know) insurance agent. How did you get the idea you do not need liability insurance in the first place - it is pretty obvious that anyone running a business is liable for neglect etc. - whether online or not.
What you may need is:
- Liability
- The regular fire etc. insurance - once for your servers unless you rent them, second for your office (only neglegible small online operations have NO office space)
- IT / Theft etc. stuff for data loss (note: backups still needed, otherwise it is mostly gross neglect which no insurance covbers). For data center side you may want to push that to the hoster (as he controls security).
Turn it as you want, a company is a company.
In the United States, I would encourage you to look into Technology Liability insurance. It is relatively new, but this type of liability insurance addresses the needs of online businesses.
