Insurance is probably the last thing on your mind when you're building a startup. You're thinking about product, hiring, fundraising, getting that first customer. And then someone asks for a certificate of insurance before they'll sign a contract. Or your lawyer says D&O is required before the term sheet closes. Or your first employee gets hurt.
At that point, you need to know what you need. Not a generic checklist -- coverage matched to what you're actually doing right now.
Stage 1: The idea stage (pre-revenue, no employees)
Most pre-revenue startups don't need much. But "not much" isn't "nothing."
General liability is typically the first coverage that matters, and sometimes the only one. GL covers third-party bodily injury and property damage. If a client trips in your coworking space, if you break something at a customer's facility, if a visitor gets hurt at your office -- GL is what responds.
A standard GL policy for a pre-revenue startup in Chicago typically costs $400 to $800 per year. Many coworking spaces in the West Loop, River North, and Fulton Market require proof of GL before you can sign a lease. Some clients will ask for it before they'll let you in the building. It's worth having for either reason.
What you probably don't need yet: workers comp (no employees), D&O (no board or investor with fiduciary exposure), cyber (no real customer data), E&O (no work product being delivered to clients who rely on it).
Stage 2: First hire
This is where things get real fast.
Workers compensation becomes legally required the moment you hire your first employee in Illinois. Not a best practice. The law, with no exception for small companies and no grace period. Operating without it exposes you to personal liability for workplace injuries and potential fines from the Illinois Workers' Compensation Commission.
Workers comp costs vary a lot by job type. Office workers -- software engineers, designers, marketing roles -- generally run $0.40 to $1.00 per $100 of payroll. A $100,000-a-year engineer translates to $400 to $1,000 in workers comp premium. That number jumps sharply if anyone's doing physical work, deliveries, or installations.
Professional liability (errors and omissions) often matters at this stage too. If you're building software, providing consulting, or delivering advice that clients act on, E&O covers you when a client claims your work caused them financial harm. A client whose revenue gets disrupted because of a bug in your integration will look for somewhere to direct that loss. Without E&O, that "somewhere" might be you personally.
E&O premiums for early-stage tech companies in Chicago typically start at $1,500 to $4,000 per year for a $1 million per occurrence / $2 million aggregate policy. Fintech and health tech push those numbers higher because the stakes per error are bigger.
Stage 3: Funded (seed or Series A)
Once you've raised outside capital, the insurance picture changes again.
Directors and Officers (D&O) insurance is what most institutional investors require before they'll close. It protects the personal assets of your board members and officers if they're sued for decisions they made in their management capacity. Investors who join your board are taking on personal legal exposure. Without D&O, most experienced investors won't accept a board seat -- which means they won't close the deal.
D&O premiums for a seed-stage startup typically run $3,000 to $8,000 per year for a $1 million to $2 million limit. At the Series A level with more complex governance and more capital at risk, premiums can reach $10,000 to $20,000 depending on your industry and revenue.
One thing founders consistently get wrong: waiting until the week before close to start the D&O application. Underwriting can take two to three weeks. Start the process as soon as you have a term sheet, not after.
Cyber liability also becomes essential at the funded stage, especially if you're handling customer data, processing payments, or holding any personally identifiable information. A cyber policy covers breach response costs, notification expenses, regulatory defense, and business interruption from a ransomware attack or similar incident.
A basic cyber policy for an early-stage startup starts around $1,500 to $3,000 per year. Fintech, health tech, and e-commerce founders should budget more. Carriers are asking harder security questions now than they were two years ago. Expect detailed questions about multi-factor authentication, endpoint protection, and data backup practices during the application. If your security posture isn't strong, your premiums will reflect that.
Other coverages worth knowing
Employment Practices Liability (EPL) covers wrongful termination, discrimination, harassment, and failure-to-promote claims. It's not usually required, but the odds of an employment claim go up as you scale headcount quickly -- especially when you're moving fast and HR decisions are informal. EPL for a company with under 25 employees typically runs $2,000 to $5,000 per year. Once you're past 10 employees and in a funded stage, it's usually worth adding.
Hired and non-owned auto matters if anyone at the company uses vehicles for business. If your account manager drives their personal car to a client meeting and gets into an accident, their personal auto policy might deny the claim because it was a business trip. A hired/non-owned auto endorsement on your commercial policy closes that gap for a few hundred dollars per year.
Umbrella coverage is cheap relative to what it buys. A $1 million umbrella sits on top of your GL and typically costs $500 to $1,500 per year. For startups at the funded stage, it's almost always worth adding.
The Business Owner's Policy shortcut
If your startup is office-based, software or service-focused, and under roughly $5 million in revenue, a Business Owner's Policy (BOP) can be an efficient starting point. A BOP bundles general liability and commercial property (for equipment, furniture, and business contents) into one policy, usually cheaper than buying each separately.
BOPs for small Chicago startups typically run $800 to $2,000 per year. You'd add E&O, D&O, and workers comp separately since those aren't included in a standard BOP. For a software or consulting startup, that combination is often the right stack through the seed stage.
Chicago-specific things to know
Commercial lease requirements in Chicago have tightened. Many landlords in the West Loop, River North, and Fulton Market now require GL limits of at least $2 million and often require being named as an additional insured on your policy. Get the insurance requirements from your landlord before you apply for coverage, not after. It affects which policy you need and how it has to be structured.
Illinois workers comp rules are stricter than in some other states. Business owners and officers generally can't opt out of coverage the way some states allow. Talk to both your business attorney and your insurance broker about how this applies to your specific corporate structure and ownership setup.
And if you're in a regulated industry -- fintech, health tech, anything involving financial data or medical records -- some standard carriers won't write you. The application process is different, the underwriting is more detailed, and the right broker knows which markets are actually realistic for your situation rather than burning weeks on applications to carriers that'll decline you.
The two mistakes founders make
Most founders make one of two opposite mistakes.
The first is buying everything at once. Someone tells them they need "startup insurance" and they walk away with six policies they don't need yet, spending $15,000 to $20,000 in year one before they've signed a single client contract. That money would have been more useful in the product.
The second is skipping coverage at the wrong moment. They forget Illinois workers comp kicks in with the first part-time hire. They close a client contract without E&O and then face a claim with no coverage. They're two weeks from a funding close and haven't started the D&O application.
The right approach is staged and matched to what you're actually doing. GL at the start. Workers comp the moment you hire. E&O when you're delivering work product clients rely on. D&O before serious fundraising conversations get underway. Cyber when you're handling real customer data. EPL as headcount scales past 10.
A startup insurance broker who works with Illinois founders will know these checkpoints and can build the right stack for your current stage rather than guessing.
What to do next
Startup and commercial insurance is more complex than personal lines. The questions are harder, the carrier options vary significantly by industry and stage, and getting it wrong at a critical moment -- a funding round, a first employee injury, a client dispute -- has real consequences.
If you're a founder in Chicago or anywhere in Illinois looking for startup insurance guidance, reach out to Jack Ray directly. He works with startups and commercial clients across the state and knows which carriers are realistic for each industry and funding stage.
Email: jray@lakeshoreriskadvisors.com