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Whether your business designs large-scale custom software for specialist industries or it sells small mobile apps in the hopes of creating the next Angry Birds, you and your business face risks every day.
And those risks mean that you’re exposed to many types of lawsuits. Dissatisfied customers, trademark infringement, accidental property damage, and workplace injuries could all lead to expensive six- or seven-figure legal bills.
To protect against such financial disasters, software developers need small business insurance. By paying a yearly premium, your business can enjoy financial protection from costly legal action. When a lawsuit is filed against you, your insurance can…
Besides your premium, all you'll have to pay is your deductible, which you can adjust to meet your budget requirements.
But how do you know which types of insurance to buy? There are business insurance policies for data breaches, workplace injuries, property damage, employment lawsuits, and types of lawsuits you didn't even know existed. It can be tricky to determine which is best for app and software developers.
In many cases, you'll have to buy insurance coverage to be in compliance with the law or meet the requirements of a contract. In other cases, you'll buy insurance because you want to protect against financial risks and software liability issues that are especially relevant to software developers.
But insurance is only one part of the risk management picture. Buying insurance without implementing basic risk management practices is a little like building a tornado shelter but not putting a lock on your front door. So in addition to helping app and software developers find insurance, Tech Insurance provides free risk management resources.
Stay on this page for more information about which small business insurance policies cover small businesses, freelancers, and contractors who develop applications and software.
General Liability Insurance protects software designers and programmers from day-to-day risks ranging from slip-and-fall injuries to copyright infringement. You've probably heard of General Liability Insurance (GL) because state laws often require it. GL covers lawsuits when your business…
If customers, clients, or delivery personnel are injured on your property and sue your business for damages, your General Liability policy can pay for the lawsuit. In fact, many policies also pay for the immediate medical expenses of people injured on your property (e.g., covering the cost for you to call an ambulance, when a client trips down your stairs).
GL Insurance also protects software developers from copyright infringement cases. If a new app you’re working on resembles a competitor's product, you could be sued. And any use of copyrighted music, graphics, designs, code, or other intellectual property could trigger a lawsuit, which can be expensive even if it’s ultimately dropped. Let's take a look at an example to see why.
An app developer is working on a game that’s more addictive than Candy Crush Saga and Angry Birds combined. He maintains a blog about his work and posts about his progress on the app, joking that both popular games will seem like “real snooze-fests in comparison.” To accompany the post, he includes an image of both an angry bird and an iconic screenshot of Candy Crush.
The blog has a decent following, and eventually lawyers from Angry Birds see the post – which includes, the lawyers point out, improper use of copyrighted images. They contact the developer with a lawsuit alleging $300,000 in damages for defamation and copyright violation.
Luckily, the developer has a General Liability Insurance policy that includes coverage for advertising injury cases. The lawyer his insurance company provides negotiates with the Angry Birds lawyer to drop the case if the developer agrees to take the logo off his website. He does, the case is dropped, and all the developer has to pay is his $500 policy deductible. Phew.
If a client has never asked about your E and O coverage, it's just a matter of time until they do. E&O is important protection for software and app developers, but it's also a crucial component to closing deals with new clients and earning their trust.
If you're traveling on a road trip across the country, you may check for AAA-certified hotels. That way, when you pull into to spend the night in Smalltown, USA, you know you can expect certain levels of service, warm water, and (hopefully) no bedbugs.
For your clients, E&O Insurance works in a similar fashion. Many clients require that their software contractors have this policy before they’ll sign a contract. It reassures them that they are working with professionals, and they'll know that an insurance company will back up your work in the event that anything goes wrong.
How does E&O work? Errors and Omissions Insurance covers a small business when its employees (or covered subcontractors) make an error or deliver a product that isn't exactly what the customer wants. It's your "work insurance."
Errors can occur at any stage of software development. For example:
E&O Insurance covers all these errors and other risks associated with writing, designing, and fixing software.
In addition, E & O offers coverage for the type of cyber risk software developers are most likely to face. Customers use your products on their computers, which means that any security flaw in your product could lead to a data breach on their network. When that happens, E and O coverage can pay for a data breach lawsuit. This cyber risk is called "third-party liability" because it happens on a customer's (the third party’s) network. We'll discuss more types of data breach protection in the next section.
You've probably been reading a lot about data breaches in the news and hearing people talk about Cyber Risk Insurance. You might have wondered whether you need this type of insurance. The truth is, you probably don’t. Here's the deal: for most software developers (especially freelancers, independent contractors, and sole proprietors), their data breach liability is already covered with Errors & Omissions Insurance.
Cyber Risk Insurance (also called Cyber Liability or Data Breach Insurance) only covers first-party data breaches. These occur when your computers are hacked. Because most developers don't have enough customer data on their networks to put them at serious risk of a first-party data breach, it usually doesn't make sense for developers to buy this coverage.
Of course, there are exceptions. Some developers might have a lot of private data. A developer who stores customer data and payment information on their network could face a lawsuit if the data is hacked or unintentionally disclosed online.
However, in our experience, most small software businesses get sufficient data breach coverage with Errors and Omissions Insurance and don't need any more. Isn't nice to hear someone say you don't need to buy something?
Packaged Coverage at Discount Rate
- with The Business Owner's PolicyLearn More
Business Owner's Policies (or BOPs for short) combine General Liability and Property Insurance into one policy.
If you're like other small-business owners, you watch your budget closely. BOPs are insurance policies specially designed for small businesses. Insurance companies bundle GL and Property together and offer small businesses a discount on the package.
Larger businesses can't qualify for this lower-premium insurance, so if your business is a small software firm, make sure to take advantage of these savings.
Most people are familiar with Workers' Comp. from an employee's perspective, but now that you're a business owner, what do you need to know about it?
For starters, most larger software and app developers have to purchase Workers' Compensation Insurance (also called Workers' Comp or Workman's Comp) because it's the law. Forty-nine states require this insurance (Texas is the oddball here). Small companies like yours also have to purchase it unless they qualify for an exception. And, hold on, there's good news for your budget.
If you only have a few employees, you might be able to opt out of purchasing coverage, depending where you live. This is good news for sole proprietors, independent contractors, and small-scale software businesses. To find out if your state requires you to have Workers' Comp, check out this quick guide to state Workers' Comp laws from our sister site, insureon.
If you don't have to buy WC, you can save a little money now. But remember: if your business expands and hires new people, you might have to purchase this insurance down the road. Don't forget to factor it into your long-term budget.
Injuries can happen in any workplace. Employees can trip over power cords, slip on rain-slick stairs, or hurt their back carrying a box of printer paper. Workers' Compensation Insurance protects employers from having to pay for their employees'…
Repetitive stress injuries are especially common in the tech world, so let's take a look at an example.
Up against a tight deadline to deliver enterprise software for a new client, one of your employees performs a late-night marathon coding session. Three cans of Red Bull and seven hours later, he finishes the project.
Unfortunately, in the following weeks, the employee starts to develop carpal tunnel syndrome. Surgery is going to cost $20,000 and he’s going to need ongoing physical therapy. The total cost for everything (including the partial salary you'll pay him while he can't work) comes to $50,000.
Fortunately, Worker's Compensation insurance pays for everything beyond your deductible. With your budget freed up, you're able to hire a temporary worker to fill in for the injured employee. Your productivity and budget survive unscathed.
Employer's Liability Insurance is often included with Workers' Comp and pays for the legal costs associated with a workplace injury or illness.
If an employee slips in the break room after the dishwashing machine leaks on the floor, Employer's Liability Insurance could protect you from the legal expenses if she decides to sue over her injury.
Together, Workers' Comp and Employer’s Liability Insurance offer comprehensive coverage, paying for both medical and legal expenses of a work-related illness or injury.
Fidelity Bonds (also called Employee Dishonesty Bonds) are small insurance packages developers might purchase when they sign a contract with clients who work in certain industries. Financial companies, banks, and other firms sometimes require contractors to purchase these "bonds," which protect the client from any dishonest activity (like theft or fraud) the contractor might commit.
In other words, independent contractors and software companies usually only purchase these bonds when their client requires it. You'll probably only have to worry about Fidelity Bonds if you work with businesses in financial industries.
Fidelity Bonds aren't a sign that your client doesn't trust you. Rather, they’re part of the higher theft-prevention standards certain industries have to meet.
You've won a bid to design a mobile banking app for a local credit union. In the contract, it specifies that you must purchase a Fidelity Bond by the time of signing. After purchasing the bond and showing proof of insurance, you sign the contract and get to work.
A few days after you deliver the app, the client calls you. They're furious. An employee of yours built a backdoor in the app and used it to electronically wire money to her bank account. You can't believe it. Did she think no one would notice?
In this situation, Fidelity Bond coverage reimburses the credit union, which helps you patch up your relationship with the client. And your employee? Well, she’s going to spend a long time in jail.
Did you know the most common kind of lawsuit a small business faces is an employment lawsuit?
If you think about it, it makes sense. If you've ever fired someone, you know it can get emotional. But there are more types of employment disputes than firings. Employees can sue you for…
In all of these situations, Employment Practices Liability Insurance can pay for the cost of your lawsuit.
You fire an engineer after his shoddy software testing caused your business to ship a program riddled with errors. You're completely justified to fire this person. He didn't do his job.
However, the employee claims he wasn’t given adequate time to test the software. He says you rushed the project and firing him is unfair. His claim is completely false, but you'll have to defend yourself in court. You'll have to piece together evidence from emails and memos to show that you ran the project efficiently, but he was behind schedule.
In court, the employee claims that your business was also behind schedule for another project. You counter that this was, again, the employee's fault. The case spirals into a battle of "he-said, she-said."
If you have EPLI, you can rest assured your insurance company will pay for the trial. Many insurance companies are experts at resolving these cases quickly. They can prevent a dispute from becoming a long, emotionally draining employment lawsuit.
As you know, it makes little sense to lump all "software engineering" into one category. Each software developer has unique risks because each one specializes in different software and works with different kinds of clients. When you look to insure your business, you'll want to work with small business insurance experts who understand those nuances.
As the nation's leading provider of online insurance for small IT firms, TechInsurance specializes in finding the right insurance for small tech businesses, including freelancers and independent contractors. Whether you're a small firm with a handful of employees or a software contractor working out of your house, TechInsurance will customize a policy to your budget and your liabilities.