Why do SaaS companies need business insurance?
Your software helps other businesses succeed, but downtime can cut into their profits. If a client sues, the result could be a costly lawsuit. Commercial insurance protects your business against legal expenses, property damage, and injuries. State laws and landlords may require certain types of coverage.
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6 policies every SaaS business owner should consider
Clients, landlords, or state laws may require SaaS companies to carry insurance. Business insurance can prevent financial losses in the event of an injury, property damage, lawsuit, or data breach.
Technology errors and omissions insurance
Technology E&O insurance protects SaaS providers against software liability lawsuits, such as a service outage that causes a client to lose money. It's also called tech professional liability insurance.
- SaaS platform outages
- Problems with SaaS products
- Accusations of misrepresentation
Cyber liability insurance
Also called cybersecurity insurance, this policy protects SaaS businesses against costly data breaches and cyberattacks. It is recommended for any SaaS business that manages personal data.
- Fraud monitoring services
- Data breach notification costs
- Ransomware demands and other cyber risks
General liability insurance
This policy protects your SaaS business or startup from the most common risks of working with customers and clients. Bundle it with commercial property insurance in a business owner’s policy for a discount.
- Accidental client injuries
- Accidental damage to a client's property
- Defamation and copyright lawsuits
Fidelity bonds
A fidelity bond compensates your client if an employee at your SaaS company steals from them. It’s sometimes called crime insurance or an employee dishonesty bond, and is often required for client contracts.
- Unlawful data access by your employee
- Employee embezzlement
- Other employee theft or fraud
Workers' comp insurance
If your software company has employees, you'll probably need workers' compensation insurance to comply with state law. It helps pay for medical costs from work-related injuries and illnesses.
- Medical bills from employee work injuries
- Disability benefits while an employee recovers
- Lawsuits over work injuries
Commercial auto insurance
This type of insurance covers the cost of accidents involving your SaaS company's vehicle. Most states required this coverage for vehicles owned by a business.
- Auto accident lawsuits
- Property damage caused by your vehicle
- Stolen or vandalized business vehicles
SaaS business insurance costs
Average costs are directly tied to policies purchased by TechInsurance customers.
General liability: $31 per month
Errors and omissions: $91 per month
Cyber insurance: $153 per month
View more expected costs.
Factors that can influence your premium pricing include:
- Your SaaS services and products offered
- Value of your business property and equipment
- Types of insurance products purchased
- Policy limits and deductibles
- Number of employees
- Claims history
- Annual income
Start a free application to see how much insurance will cost for your SaaS business.
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Common questions about insurance for SaaS companies
Do SaaS client contracts require cyber insurance coverage?
Many client contracts require software as a service (SaaS) companies and SaaS startups to carry cyber insurance and errors and omissions (E&O) insurance in a bundle called technology errors and omissions insurance, or tech E&O.
Clients in heavily regulated industries, including healthcare, often require extra layers of financial protection. Having the right policies to protect your business (and theirs) from common liabilities and lawsuits is essential for winning contracts and signing clients.
Prospective clients may request to be included on your cyber policy as an additional insured, and ask for a certificate of insurance so they can be confident that their business is protected.
Carrying cyber insurance is essential if you handle customer data, such as names, login credentials, email addresses, and other personal information.
A DDoS attack, ransomware attack, AI-driven cyberattack, cyber extortion attempt, or other data breach could expose this information, and your client would likely hold your business responsible. A tech E&O policy would assist with legal fees and other costs associated with the breach.
If a data breach or other cyber incident occurs at your own software business, you'd need a standalone first-party cyber insurance policy for protection (outside of a tech E&O policy).
This policy will help you pay for customer notifications, credit monitoring, legal expenses, and regulatory fines. Many policies also include access to a 24/7 breach response hotline, allowing you to act quickly and minimize potential damage.
Even when not required, why is business insurance important for SaaS startups and companies?
Whether you're a brand-new startup or an established leader of your industry, mistakes happen. And mistakes in the SaaS industry can end up costing your clients a significant amount.
The right insurance policies can help protect you and your business from errors, bodily injuries, accidents, and other unique risks that open your SaaS business to liability and lawsuits.
Even when it's not mandated by law, your clients may include certain policy requirements in your business contracts. Failing to carry the required policies could make you less competitive in winning contracts and bids.
Software businesses often elect to carry both errors and omissions (E&O) insurance (also called professional liability insurance) and third-party cyber insurance.
These policies protect against common lawsuits arising from incorrect advice, mistakes, disruptions, data breaches, and other incidents, including software mistakes and service outages. Insurers often combine these two policies into one: technology errors and omissions insurance, also called tech E&O.
Tech E&O covers a range of the major risks faced by SaaS businesses. For example, if your cloud-based software service goes down and causes business interruptions for your clients, your tech E&O policy would cover legal defense and settlement costs if the client decides to sue over the error.
Do SaaS businesses need both tech E&O coverage and cyber insurance?
Yes, having both tech E&O coverage and cyber insurance is essential for SaaS businesses.
Tech E&O coverage can support your business if:
- A platform outage causes a client to miss an important deadline
- An API malfunction results in inaccurate client data synchronization
- A client experiences data loss during a platform migration
- A configuration error exposes confidential client information
Software companies often purchase E&O insurance in a tech E&O bundle (also called tech professional liability insurance), which includes both E&O insurance and third-party cyber insurance.
This bundle protects your SaaS company against both claims for professional negligence and claims that your company caused or facilitated a data breach for your clients.
A first-party cyber insurance policy is necessary to protect your own SaaS business in the event of a data breach or other cybersecurity incident within your own company.
The first-party and third-party cyber policies cannot be used interchangeably, and having both types of cyber insurance is exceptionally important for SaaS businesses, which face a wide range of cyber risks to both clients and their own digital business operations.
It's important to know that tech E&O is a claims-made policy. This type of coverage must be active both when the incident occurred and when the claim was filed. It is possible to set a retroactive date to cover incidents that happened before you established your policy.
A standalone cyber insurance policy is also essential for tech businesses. It's necessary to carry your own first-party cyber policy to ensure that your business is protected in the event of a data breach or other cyber incident.
If a SaaS company hosts data on AWS or another cloud provider, what do they need insurance for?
Hosting data on a cloud service like Amazon Web Services (AWS) means you're absorbing some of the risk of working with those companies.
Cloud providers give your business an infrastructure to work with, but you're responsible for the settings, access control, and managing your client data within these services.
To protect your business, you should consider two important types of cyber insurance:
- First-party cyber insurance protects against data breaches and cyberattacks that directly affect your SaaS company, including malware that overwhelms your servers or a data breach that exposes your clients' personal information, such as email addresses or credit card numbers. This coverage is also called data breach insurance.
- Third-party cyber insurance helps cover legal costs when a client claims that your software resulted in a data breach or cyberattack at their business.
Third-party cyber coverage is included in tech E&O insurance, which bundles cyber insurance with E&O coverage. You can add first-party cyber coverage as an endorsement to your general liability insurance or business owner's policy.
Cyber coverage often includes business interruption insurance, usually to protect against outages of your company's own services.
Speak with a licensed agent to get contingent business interruption insurance to cover a cloud provider's outage that impacts your clients. You can also include coverage for service-level agreement (SLA) breaches and other risks.
What other business insurance policies do SaaS businesses need?
SaaS businesses often invest in additional policies to cover a wide range of insurance claims. You may want to consider the following:
- Business owner's policy (BOP) combines a general liability insurance policy with a commercial property policy to cover many of the most common liability risks, such as advertising injuries, as well as your business property.
- Commercial property insurance protects against the cost of repairs or replacement if a fire, storm, vandalism, or other incident damages or destroys your business property and your company's physical assets. You can also add equipment breakdown insurance as an endorsement to help your business recover from machinery failure.
- Electronic data processing (EDP) insurance covers your electronic equipment, including computers, if you experience data loss due to a power surge, fire, or covered natural disasters.
- Business interruption insurance helps protect against lost income and other financial losses resulting from a covered property loss, such as damage from a fire or natural disaster. It's also called business income insurance.
- Intellectual property (IP) insurance assists with legal expenses related to IP lawsuits and claims of intellectual property theft.
- Employment practices liability insurance (EPLI) is a type of management liability insurance that protects your business from legal defense costs if you're sued by an employee for violating their rights, such as harassment or discrimination.
- Directors and officers (D&O) insurance covers your board of directors and other key decision-makers from legal fees resulting from claims of poor direction and mismanagement. You can bundle D&O coverage with other types of management liability insurance (such as EPLI) for a discount.
How can you save money on SaaS insurance coverage?
SaaS business owners can save money when shopping for insurance in several ways:
- Practice risk management. Ensuring your workplace stays safe, compliant, and free of unlawful business practices (such as wrongful termination). This will help prevent claims and keep costs low.
- Bundle policies. You can often combine policies purchased from one insurance company in a cost-saving package. The most common example is a business owner's policy or a tech E&O policy.
- Choose lower limits or a higher deductible. Though you'll want enough insurance coverage for a potential claim, you can opt for lower policy limits or a higher deductible to reduce your premium.
- Pay the full annual premium. It's usually less expensive to pay the full annual amount for your insurance solutions rather than pay your premium in monthly installments.
- Shop around. By filling out TechInsurance's easy online application, you can compare quotes from top-rated insurance companies to find a policy that fits your budget and insurance needs.
TechInsurance agents can help you find the best liability coverage for your needs without breaking the bank, providing financial protection so you can focus on business operations with peace of mind.
