Do VC investors require D&O insurance?

Reviewed by Matthew Bartlett, Director, Apex Insurance Brokers Limited · Last reviewed 2026-08-06

If your term sheet has just landed and somewhere in the schedule there's a line about "directors' and officers' liability insurance," you're not being singled out and nothing is wrong. It's one of the most routine conditions in a venture round. But it can arrive with very little explanation, right when you're juggling legals, diligence and a completion date, and it's natural to wonder whether it's genuinely necessary or just boilerplate you can push back on.

This page answers the question directly, explains why investors care so much about it, and walks through what the requirement usually looks like and how to get cover arranged quickly so it doesn't hold up your close.

Is D&O insurance actually required?

Let's be precise, because the wording matters. D&O insurance is not required by law. There is no statute that says a company must carry it, and plenty of profitable businesses never buy it. So if anyone tells you it's "mandatory," that's not quite right.

What is true is that it's frequently required by your investors as a contractual condition of their investment. When a VC or institutional investor puts money in, they typically negotiate a set of protections into the investment agreement and the associated documents. A requirement to maintain D&O cover — often at a specified minimum limit — is a standard one of these. So the obligation is real and enforceable, but it flows from your contract with the investor, not from the law.

That distinction is worth holding onto. It means the requirement is negotiable in its detail (the limit, the timing, who's named), and it means the reason it exists is about the specific people sitting around your board table, not a regulator ticking a box. Understand the "why" and the clause stops feeling arbitrary.

Why do VCs care about D&O so much?

When an investor leads or participates in your round, they'll very often take a board seat or the right to appoint a director or observer. That appointed director is a real person, and once they join your board they take on the legal duties and personal exposure that every director carries. They can be named personally in claims — and directors' liability is generally personal and can be unlimited.

Those claims can come from several directions. A few of the most common:

• Shareholders and other investors — for example alleging that the board misrepresented the company's position, mismanaged funds, or breached duties.
• Employees — claims relating to how the board is alleged to have handled employment matters, discrimination, or wrongful dismissal at a senior level.
• Regulators — investigations and enforcement action, where directors can face significant legal costs simply responding, regardless of the eventual outcome.
• Creditors — particularly relevant if the company hits financial distress, where directors' conduct in the run-up to insolvency can be scrutinised.
• Competitors and other third parties — for instance over alleged misuse of confidential information or misleading statements.

D&O insurance responds to these situations. Broadly, it covers the legal defence costs and any resulting settlements or awards against directors and officers arising from decisions they made in their role, and it can also protect the company itself where it's entitled to be covered. For an investor, that's the point: their appointed director shouldn't have to risk their own house because they agreed to help govern your company. And a well-capitalised, insured board is simply a lower-risk place for their money to sit.

There's a second, quieter reason too. Good directors — the experienced operators and non-execs you actually want on your board — often won't accept an appointment at all unless D&O cover is in place. So the requirement helps you attract the calibre of board member that makes the company more investable in the first place.

Larger or more complex risk? Speak directly to a director — call 0117 325 0027 or email info@apexinsurancebrokers.co.uk.

At what funding stage does it usually come up?

The honest answer is that it varies with the investor and the deal, but there's a clear pattern.

At pre-seed and seed, D&O is sometimes required and sometimes not. Angel investors and smaller funds may not insist on it, especially if they're not taking a board seat. Some seed-stage institutional investors do require it, particularly when they're appointing a director. Plenty of founders put a modest policy in place at seed anyway, because the moment you take on outside money and formalise a board, the personal exposure is genuinely there.

Series A is where D&O most commonly becomes a firm condition. By this point you almost certainly have an institutional investor taking a board seat, a more complex cap table, employees, and enough at stake that the investor wants formal protection in place. If you're reading a Series A term sheet, expect the requirement to be there and plan for it as a standard cost of the round rather than something to fight.

From Series B onwards, it's effectively assumed. The question at later stages is rarely "do we need it" but "is our limit high enough for where the business now is" — cover that was adequate at Series A often needs stepping up as headcount, revenue, valuation and regulatory exposure grow.

If you'd like the wider picture of what to have in place at each stage, our insurance by funding stage guide maps the common requirements from pre-seed through growth, and our plain-English explainer on D&O covers how the cover actually works in more detail.

What does the requirement usually look like?

In practice, the D&O obligation tends to appear in one or both of two places: as a condition to completion (something to be in place by, or shortly after, the money going in) and as an ongoing covenant in the investment agreement (an obligation to maintain the cover while the investor remains a shareholder). The specific drafting varies from deal to deal, so this is exactly the kind of clause your corporate lawyer should review rather than something to take at face value.

Typically the clause will ask you to:

• Put in place, and keep in place, a D&O policy on terms that are reasonable and customary.
• Maintain at least a specified minimum limit of indemnity.
• Ensure the investor's appointed director benefits from the cover, sometimes with wording about how the policy treats them.
• Not cancel or materially reduce the cover without consent.

On the limit, there's no single figure that's "correct," and you should be wary of anyone presenting a fixed limits-by-round table as fact. Investors commonly express an expectation as a minimum limit of indemnity — you'll see figures such as £1m, £5m or £10m used as illustrative reference points — with the right level depending on your sector, headcount, jurisdictions you operate in, funding stage and risk profile. What matters is matching the limit to your actual exposure and to what the term sheet specifies, not picking a round number. A broker who works with venture-backed companies can benchmark a sensible limit against businesses like yours and against what your investors typically expect.

How quickly can I get D&O in place around completion?

This is usually the real worry — not whether to buy it, but whether it'll be sorted in time. The good news is that D&O for an early-stage or growth company is generally quick to arrange, provided you get the information together and start early enough. It's not unusual to move from proposal form to cover in a matter of days when a completion date is looming, though you should never leave it to the final hours.

To move fast, it helps to have ready:

• Basic company details, incorporation and structure, and where you operate.
• Latest accounts or management figures, plus your funding history and the round you're closing.
• Details of the board and any incoming directors, including the investor's appointee.
• Any known claims, disputes, or circumstances that could give rise to a claim.
• The relevant wording from your term sheet or investment agreement, so cover can be matched to the requirement.

A specialist broker's job here is to translate the investor's clause into a policy that actually satisfies it, place it with an insurer comfortable with venture-backed businesses, and make sure the limit, territory and terms line up with what your legals require — so your lawyers can tick the condition off without a back-and-forth. If you're operating in or raising from the US, or have US directors or subsidiaries, flag that early; it materially affects the cover and pricing and is best handled up front rather than discovered late.

The single most useful thing you can do is loop your broker in as soon as the D&O requirement appears, not the day before completion. Even a week's notice changes how smooth this is. If you'd rather talk it through than fill in a form cold, speak to an Apex specialist and we'll tell you exactly what we need and how quickly we can turn it around.

Is D&O the only cover a round expects?

D&O is the one investors most often name explicitly, but it's worth knowing it rarely stands alone. As you take on staff, a legal requirement does kick in: Employers' Liability insurance is compulsory under the Employers' Liability (Compulsory Insurance) Act 1969 once you employ people, with only narrow exceptions such as certain close family-only or single-director companies. Trading without it where it's required can expose the business to penalties, so this is one to get right from your first hire.

Beyond that, depending on what you do, investors and customers may expect professional indemnity, public liability, cyber and — increasingly — cover reflecting how you use technology and data. These aren't usually spelled out in the term sheet the way D&O is, but they form the sensible insurance baseline of a company that's scaling and starting to sign larger customer contracts. A broker who knows the startup landscape will help you build this out proportionately rather than over-buying.

The short version to forward to your co-founder

D&O insurance isn't a legal must, but your investors will very likely require it — most firmly from Series A, sometimes earlier. It exists because their appointed director, and yours, carry real personal exposure to claims from shareholders, regulators, employees and creditors, and cover protects those individuals and the company. Read the exact clause with your lawyer, match the limit to the requirement and your actual risk, and start arranging it the moment it appears in the term sheet rather than the night before you close. Done early, it's a quick, routine part of getting the round done.

Apex works with founders through exactly this — from a first seed cheque to later growth rounds — so if you'd like a hand mapping the requirement to a policy your investors and lawyers will accept, we're happy to help.

Apex Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority (FRN 724952). This article is general information, not advice on a specific policy or a recommendation to buy any product.