Insurance clauses in term sheets and investment agreements

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

Somewhere in the paperwork of your funding round — usually buried in a subscription agreement or a shareholders' agreement rather than the headline term sheet — there will be a section about insurance. For most founders it is the least glamorous clause in the deal, so it gets skimmed, ticked, and forgotten until a solicitor asks "do you actually have this cover in place?" a week before completion. That is the wrong moment to find out.

This page walks through the insurance-related clauses you are most likely to meet across a term sheet, subscription (or investment) agreement, and shareholders' agreement. It explains what each type of clause is doing, which parts founders can usually push on, and why a quick conversation with a broker early saves a scramble later. It is general guidance — your actual agreement will have its own wording, and you should always have a solicitor advise on the specific document.

Where do insurance clauses show up in a funding round?

The term sheet itself is usually short and non-binding on the detail. It may signal an intention — "the Company shall maintain directors' and officers' insurance" — without spelling out limits. The real substance lands in the longer documents that follow:

• The subscription or investment agreement — where investors put money in. This is where you typically find warranties about the state of the company, including its existing insurance, and often a covenant to arrange specific cover.
• The shareholders' agreement — which governs how the company is run going forward. Ongoing obligations, such as keeping D&O cover in force while investors remain shareholders, tend to sit here.
• The disclosure letter — the founders' chance to qualify the warranties by disclosing the true position. If your cover has a gap, this is where you say so.

Because the same insurance theme can appear in more than one document, it is worth reading them together. A warranty in one and a covenant in another can pull in slightly different directions, and the drafting is not always consistent.

What is a warranty about existing insurance?

A warranty is a statement of fact that you, as founder or the company, are confirming to be true at the point of signing. Insurance warranties usually ask you to confirm things like: the company holds the insurances a business of its type would reasonably be expected to hold; those policies are in force; premiums are paid up to date; and there are no outstanding or threatened claims that could affect cover.

The risk with warranties is not the wording, it is accuracy. If you warrant that "all insurances are in full force and effect" when in reality a policy lapsed three months ago, you have given an incorrect warranty — and that can expose you to a claim from investors for breach. The protection is honest disclosure. Anything that is not quite true, or not quite complete, gets written into the disclosure letter so the investor is signing with eyes open. Getting your broker to confirm exactly what is in force, and on what terms, before you draft that disclosure is the single most useful thing you can do here.

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

What is a covenant to maintain or put in place insurance?

Where a warranty looks backwards ("this is true now"), a covenant looks forwards ("we promise to do this from now on"). The most common insurance covenant in a venture deal is an obligation to put in place, and then maintain, directors' and officers' liability cover. You will often see it phrased as the company agreeing to obtain D&O insurance on completion and keep it in force for as long as the investor holds shares or has a board seat.

It is worth being precise about why this appears. D&O insurance is not a legal or statutory requirement in the UK. No law says a private company must hold it. It shows up because investors want it — commonly from Series A onwards, and sometimes earlier where an investor is taking a board seat. Their director, or a director they have backed, is personally exposed if the company faces a claim alleging a management decision caused loss, and D&O is what responds. So the covenant is really the investor protecting the people around the table, and it is entirely reasonable for them to ask. Our directors' and officers' insurance explained page goes into what that cover actually does.

Covenants can also touch other lines — a promise to maintain "adequate" or "appropriate" insurance generally, or to keep specific covers a business of your size would carry. If you have any employees, remember that employers' liability insurance is a genuine legal requirement under the Employers' Liability (Compulsory Insurance) Act 1969, with only narrow exceptions (such as some family businesses or companies with a single employee who owns most of the shares). An investment covenant asking you to hold it is simply asking you to comply with the law you are already under.

What about specified limits and named covers?

Some agreements go a step further and name a figure — a D&O limit of indemnity of, say, £1m, £5m or £10m, or a requirement to hold professional indemnity or cyber cover at a stated level. These numbers are where founders most often sign without thinking, and where a broker earns their keep.

A specified limit is a commercial choice dressed up as a requirement. Whether £1m, £5m or £10m is sensible depends on your sector, your contracts, your headcount, your board composition and the size of the round — not on a number an investor's template happened to carry over from another deal. The figures above are only illustrative options to show the kind of range that gets discussed; they are not a recommendation of what your company needs. If an agreement pins you to a limit that is higher than the market will price sensibly for a company at your stage, you can end up committed to buying cover that is hard to source or disproportionately expensive. Equally, a limit set too low can leave your own directors under-protected.

The practical move is to get a broker to sanity-check any named limit before it is locked into the wording. Often the fix is simple — softening "not less than £X" to "such amount as the board reasonably considers appropriate," or agreeing a limit that is actually achievable in the current market. Because insurance products and pricing shift over time, it is worth treating any hard-coded figure as something to review rather than accept on sight, and taking specialist input on what is realistic for your stage.

Which parts are actually negotiable?

More than founders assume. Investors expect discussion on the mechanics, even if the principle — that D&O should exist — is not really in play. Points that are commonly negotiated include:

• Timing. Must the cover be in place on completion, or within a reasonable window afterwards? A short grace period is common and stops the round stalling on a policy that is mid-arrangement.
• The limit. As above — the number, and whether it is a hard floor or a "reasonable" standard the board sets.
• Who pays. Premiums come out of the company, but it is worth being clear that the obligation is affordable within the money being raised.
• Scope of the warranties. Qualifying broad statements with "so far as the founders are aware" or by reference to the disclosure letter.
• Duration. How long the maintenance obligation runs — typically tied to the investor holding shares or a board seat.

None of this is about resisting the investor. It is about making the obligations accurate, achievable and affordable, so you are not signing up to something you cannot actually deliver. A clause you quietly breach three months after completion is worse than one you negotiated honestly up front.

Why bring a broker in before you sign, not after?

The default order of events is that founders sign, then go looking for the cover the agreement now obliges them to hold. That creates two problems. First, you may discover the market will not price the specified limit the way the wording assumes, leaving you technically in breach from day one. Second, you lose all your leverage — once the clause is signed, softening it means going back to renegotiate rather than shaping it while the document is still in draft.

Bringing a broker in during the drafting stage flips that. We can tell you quickly whether a named limit is realistic, what a D&O policy for a company at your stage typically looks like, and whether the cover you already hold satisfies the warranties or has a gap that needs disclosing. We work alongside your solicitor — they own the legal drafting and should always advise on the specific agreement; we own the question of whether the insurance the drafting demands can actually be bought, and on sensible terms. If you are earlier in the journey, our guide to startup insurance by funding stage sets out what tends to be expected when.

It is a short conversation that routinely prevents a last-minute scramble. Speak to an Apex specialist about your term sheet and we will read the insurance clauses with you before pen hits paper.

A final word: this is deliberately general. Every investment agreement is drafted differently, and the same-sounding clause can carry different obligations depending on the wording around it. Nothing here is a substitute for legal advice on your actual document. Use it to know what to look for, then bring in your solicitor for the drafting and your broker for the cover — ideally in the same week you receive the first draft.

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.