Startup insurance in Palo Alto

Insurance is rarely the first thing a founder thinks about. It tends to arrive as a line in a document someone else wrote: a customer contract that requires $2 million in liability coverage, an office lease that asks for a certificate of insurance or an incoming board member who will not join without directors and officers coverage. Only one policy is required by California law for most startups. That requirement starts with your first employee.

This guide explains the policies Palo Alto startups usually carry, what each one is for and where to check the rules. It does not name brokers or insurers. Many local founders get introductions from their lawyers, investors or other founders, then compare quotes.

The one policy California requires: workers' compensation

The state's Division of Workers' Compensation is direct about it: California employers are required by law to have workers' compensation insurance, even if they have only one employee. Its employer fact sheet, dated September 2024, adds several points:

• Failing to have workers' compensation insurance is a criminal offense.
• Employees cannot pay for the policy or have its cost taken from their wages.
• Benefits cover all workers, including part-time employees.
• It is illegal to punish or fire an employee for filing a claim.

How to get coverage

The fact sheet lists two routes. An employer can buy a policy through an agent or broker from any licensed insurer authorized to write policies in California. Or it can become self-insured, which requires approval by the Director of Industrial Relations and meeting financial requirements. Group self-insurance lets smaller employers pool resources, but nearly all startups simply buy a policy. Payroll providers often sell pay-as-you-go workers' comp that bills premiums with each payroll run, which suits a company whose headcount changes month to month.

If someone is hurt

The fact sheet tells employers to give the injured worker a claim form, DWC 1, within one working day of learning about a work injury or illness. The employer then completes form DLSR 5020 and sends it to the claims administrator within five days. Remote employees injured while working at home can also file claims, so keep the forms handy even without an office.

Our guide to payroll and benefits covers the rest of what a new California employer sets up.

Directors and officers (D&O)

D&O insurance protects the people who run the company against claims about management decisions. Many policies also protect the company itself. Typical claimants are shareholders, investors, employees, competitors, customers or government agencies. Policies are usually written on a claims-made basis, which means the policy in force when the claim is made responds, not the one in force when the decision happened.

When startups buy it:

• When an outside investor or independent director joins the board. Experienced directors commonly ask for it.
• Before a priced round, since some term sheets list D&O coverage as a closing item. Our term sheet guide explains those documents.
• Before an acquisition or IPO, when "tail" coverage for past acts becomes a negotiating point.

Read the exclusions closely. Many policies exclude claims between insured people, fraud found by a court and some employment or securities claims unless added back. Your company's indemnification agreements with directors work alongside the policy. A startup lawyer can explain how the two fit.

Errors and omissions (E&O)

Errors and omissions insurance, also called professional liability or technology E&O, covers claims that your product or service caused a customer financial loss. Examples include a software bug that corrupts a client's data, a missed deadline that costs a customer revenue or advice that turns out wrong. For software and AI companies selling to businesses, it is often the policy customers ask about first. Enterprise procurement teams frequently send a vendor questionnaire with minimum limits for E&O and cyber.

Technology E&O is often sold in one package with cyber coverage. If you build AI products, ask how the policy treats claims about model output, training data and intellectual property. Wording on these points varies widely.

Cyber insurance

Cyber policies cover costs after a security incident. Common parts include forensic investigation, legal advice, customer notification, credit monitoring, ransomware response, business interruption and claims from people whose data was exposed.

California law makes the notification piece concrete. The Attorney General's breach reporting page explains that under Civil Code Section 1798.82 a business must notify California residents when their unencrypted personal information was, or is reasonably believed to have been, acquired by an unauthorized person. A business that must notify more than 500 residents because of a single breach must also send a sample copy of the notice to the Attorney General.

Insurers usually ask about security controls before quoting. Multi-factor authentication, backups, endpoint protection and employee training all affect price and eligibility. Wire fraud is a common startup loss, so ask whether social engineering or funds transfer fraud is covered. Our banking guide has tips on verifying payment instructions.

General liability and property

Commercial general liability covers bodily injury and property damage to others, plus some advertising injury claims. If a visitor slips in your office or an employee damages a client's property during an installation, this is the policy that responds. Landlords, coworking operators and event venues usually require proof of it. Our guides to office space and coworking cover the leases that bring these requests.

Property coverage protects your own equipment, inventory and improvements. A business owner's policy, often called a BOP, bundles general liability and property for small companies. Founders working from home should not assume a homeowner's or renter's policy covers business equipment or business visitors. Ask the home insurer in writing.

Other policies to consider

Health insurance for employees is a benefit, not a liability policy. It is covered in our payroll and benefits guide.

How startups buy insurance

1. Collect the requirements. Gather insurance clauses from your lease, customer contracts, investor documents and loan agreements. They set minimum limits.
2. Check licenses. Use the California Department of Insurance license search to confirm that an agent, broker or insurer is licensed in California.
3. Compare quotes. Ask at least two sources. Online platforms, independent brokers and payroll providers all sell startup packages.
4. Read the exclusions. Price is only one part. Limits, retentions and exclusions decide what you actually get.
5. Calendar renewals. Policies usually renew each year. Update the insurer after a funding round, a big hire wave or a new product line.
6. Keep certificates ready. Customers and landlords will ask for certificates of insurance naming them as additional insureds.

Frequently asked questions