Finding the right type of business insurance coverage for your startup matters most at key moments of growth. As your company scales, your risks evolve, and so do the insurance requirements tied to fundraising, customers, hiring, and operations.

Business insurance for startups helps protect founders, investors, employees, customers, and company assets from lawsuits, regulatory issues, and unexpected losses. But knowing what insurance you need, when you need it, and why it matters can be challenging, especially when every milestone comes with new expectations.

Below is a milestone-based guide to the most common types of startup insurance and when they typically come into play.

Closing a Funding Round: Insurance Requirements for Investors

Whether you’re closing a seed round or raising a Series A, investors often require insurance coverage that limits their personal and financial exposure. As governance structures become more formal, protecting leadership and company assets becomes a priority.

Common types of insurance required when closing a round include:

• Directors and Officers (D&O) Insurance, which protects founders, executives, and board members from claims related to company management, fiduciary duties, or regulatory compliance. Many investors will not join a board or finalize funding without D&O coverage in place.
• Crime Insurance, which protects your startup from financial losses caused by employee theft, fraud, or embezzlement. This coverage becomes increasingly important as you raise capital and manage larger cash balances.
• Key Person Insurance helps protect the company if a critical founder or executive is unable to work due to death or disability. Investors often require this coverage to reduce risk tied to leadership dependency.

At this stage, insurance is not just about protection. It’s also a signal of operational maturity and readiness to scale.

Signing Customer Contracts: Insurance to Protect Your Product and Data

Once you begin signing customers, your startup becomes responsible for delivering on product performance, uptime, and data protection. Many customer contracts explicitly require proof of insurance before deals can close.

Depending on your product and industry, common coverage includes:

• Errors and Omissions (E&O) Insurance, also known as Professional Liability Insurance, protects startups if customers claim that a product failure, software bug, or service issue has caused them financial harm. This coverage is especially critical for SaaS, fintech, and technology-driven companies.
• If your startup stores or processes customer data, Cyber Insurance helps cover losses related to data breaches, hacking incidents, ransomware attacks, and privacy violations. Many customers, particularly mid-market and enterprise buyers, require cyber coverage before signing contracts. Cyber Insurance often includes coverage for breach response costs, regulatory fines, legal claims, and business interruption related to cyber incidents.

Hiring Employees: Required Insurance as Your Team Grows

As your startup scales, hiring employees introduces new legal and financial responsibilities. Some employee-related insurance is legally required, while other policies help protect against common employment risks.

Key insurance coverage when hiring includes:

• All states require Workers’ Compensation Insurance once you hire employees. This coverage pays for medical expenses and lost wages related to work-related injuries or illnesses.
• Employment Practices Liability Insurance (EPLI) helps protect your company from employee lawsuits, including claims of wrongful termination, discrimination, harassment, or wage and hour disputes. Even unfounded claims can be costly to defend without coverage.

Together, these policies help protect both your employees and your company as your workforce grows.

Signing a Lease or Opening Financial Accounts: Insurance for Operations and Assets

When you sign a commercial lease, open a business bank account, or apply for a loan, landlords and financial institutions typically require insurance that protects both your company and their interests.

Common required coverage includes:

• General Liability Insurance protects your startup from third-party claims involving bodily injury, property damage, or personal injury. This coverage is often required by landlords and vendors before doing business.
• Business Property Insurance helps cover the cost to repair or replace company-owned equipment, like laptops, servers, furniture, and office supplies if they are stolen, damaged, or destroyed.

These policies form the foundation of operational insurance and are often required earlier than founders expect.

Why Milestone-Based Insurance Matters for Startups

Each startup milestone introduces new risks and new expectations from investors, customers, employees, and partners. Planning insurance coverage around these moments helps founders stay compliant, close deals faster, and avoid costly delays.

Modern insurance solutions designed specifically for startups make it easier to secure the right coverage at the right time and adjust policies as your business evolves. By aligning insurance decisions with milestones, founders can focus less on administrative friction and more on building and scaling their company.

Frequently Asked Questions

When should a startup get business insurance?

Startups should purchase business insurance at key milestones, like raising funding, signing customer contracts, hiring employees, or leasing office space. Many investors, customers, landlords, and partners require proof of insurance before moving forward, so securing coverage early helps prevent delays.

What insurance do investors typically require from startups?

Investors commonly require Directors and Officers (D&O) Insurance to protect founders and board members from management-related claims. Depending on the stage and structure of the business, investors may also require Crime Insurance or Key Person Insurance as part of the funding process.

What insurance do startups need before signing customer contracts?

Before signing customers, startups often need Errors and Omissions (E&O) Insurance to cover product or service-related claims, as well as Cyber Insurance to protect against data breaches and privacy risks. Many customer contracts explicitly require these policies.

Is Workers’ Compensation insurance required for startups?

Yes. All states require startups to carry Workers’ Compensation Insurance once they hire employees. This coverage pays for medical expenses and lost wages related to work-related injuries or illnesses and helps protect both employees and the company.

How can startups choose the right insurance coverage as they grow?

The best approach is to align insurance decisions with business milestones. As startups raise capital, hire employees, and expand operations, their risk profile changes. Working with an insurance provider that specializes in startups makes it easier to secure appropriate coverage and adjust policies as needs evolve.

Vouch Specialty Insurance Services, LLC (CA License #6004944) is a licensed insurance producer in states where it conducts business. A complete list of state licenses is available at vouch.us/legal/licenses. Insurance products are underwritten by various insurance carriers, not by Vouch. This material is for informational purposes only and does not create a binding contract or alter policy terms. Coverage availability, terms, and conditions vary by state and are subject to underwriting review and approval.