Insurance is one of the more surprising sections of the contract language. People are typically surprised by the type and amount of insurance their Clients request of them. Sometimes it can be burdensome enough to keep them from even starting the contract in the first place.
Other times, however, the insurance can be good for you, and can even be pretty expensive. You may ask, why do I eve need all of this insurance. It is all about risk mitigation. Since you are a startup, your client is likely much larger than you. If you fail to perform as required or lose your company, it may result in a few thousand dollars lost for you. But for your client, the loss can be more substantial. As a result, they may require you to hold insurance that they can pursue in case you are no long around to sue.
Here are a few insurances that you may see in your contract, and an explanation of what they are for:
Worker’s Compensation – This is required in many states and covers any claims against your company by employees. The terms and standards are set by each state. You can find out more here: http://www.nfib.com/article/workers-compensation-laws-state-by-state-comparison-57181/
General Liability Insurance – this is typically for general bodily injury or property damage by you or your employees. It is typically the most basic type of insurance required outside of Worker’s Comp. As a sole proprietor, the price can be as little as $500 for the year. This does not cover negligence on your part.
Errors and Omission/Professional Liability - This type of insurance protects you from suits around negligence by you or your employees. This is one of the more underestimated important insurance policies. It protects you against suit for failure of your product to perform as it should, if that failure tends to result in some sort of financial loss to your client. Because of what it covers however, it can be expensive ($2000 or more per year).
Automobile Liability – this insurance tends to cover workers at your company in the same way your personal car insurance does.