When does a startup need D&O insurance?

Reviewed by Apex Insurance Brokers · Last reviewed 2026-08-06

Almost every founder we speak to asks the same question in slightly different words: "Do we actually need D&O yet, or is this something we can leave until later?" It is a fair question. When you are early, cash is tight, and it is tempting to treat insurance as a problem for future-you. But D&O sits in a different category from most cover, because it protects you personally — your own house, savings and reputation — rather than the company balance sheet. That changes the calculation, and it changes the timing.

This page walks through the real trigger points, so you can judge honestly whether it is time for your company. There is no legal deadline forcing your hand, and we will not pretend there is. What matters is spotting the moment your directors start carrying meaningful personal risk — because that is the moment to act, and usually a little before.

First, what is D&O actually protecting?

Directors' & Officers' insurance responds when someone brings a claim against a director or senior officer personally for how they ran the company. In the UK, directors owe legal duties under company law, and if a decision goes wrong — an investor alleges they were misled, an employee claims wrongful dismissal or discrimination against a named director, a creditor pursues directors after an insolvency, or a regulator opens an investigation — the claim can land on the individual, not just the business. D&O covers the legal defence costs and, where applicable, settlements or damages.

The crucial point for founders: limited liability protects the company, but it does not wrap your directors in a force field. Personal claims against directors are exactly the gap D&O is built to fill. For a fuller breakdown of what is and isn't covered, see our companion guide, directors and officers insurance explained.

Is D&O a legal requirement?

No. This is the single most common misconception, so let us be clear: D&O insurance is not a statutory requirement in the UK. You will not be fined or struck off for operating without it. That sets it apart from Employers' Liability insurance, which is legally required under the Employers' Liability (Compulsory Insurance) Act 1969 once you employ staff, with only narrow exceptions. If you have hired anyone, Employers' Liability is a legal must-have — D&O is not.

So why do so many startups carry D&O anyway? Because the pressure to buy it rarely comes from the law. It comes from your investors, your board and your contracts. Understanding those triggers is how you answer the "do we need it yet" question.

Trigger 1: You're taking outside investment

Raising money is the single most common moment D&O appears on a founder's to-do list. Once external shareholders put capital in, they are trusting your directors to steward it — and if things go sideways, they have both the motivation and, often, the means to bring a claim. Institutional investors know this, which is why the requirement so frequently arrives as part of a funding round.

In practice, we see D&O become a live issue most often from Series A onwards, though it can surface earlier with certain lead investors. Angel and pre-seed rounds sometimes proceed without it; priced institutional rounds much less often. If you are gearing up to raise, it is worth having the conversation before term sheets land, so cover is not a last-minute scramble during closing.

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

Trigger 2: Your term sheet requires it

Very often the decision is made for you. A term sheet or shareholders' agreement may include a clause obliging the company to put and keep D&O cover in place, sometimes to a specified limit of indemnity, for as long as the investor's nominee sits on the board. When that clause is there, D&O stops being optional — it is a condition of the deal.

Term-sheet wording varies a great deal between investors and rounds, so read the specific clause rather than assuming a market standard. Some specify a minimum limit; some name particular cover extensions; some require the investor's own directors to be named insureds. It is worth having your lawyer and your broker both look at the exact language, because "the company shall maintain D&O insurance" can mean quite different things depending on the detail. If your term sheet mentions it and you are not sure what it commits you to, that is a good moment to speak to an Apex specialist before you sign.

Trigger 3: You're forming a real board

There is a difference between a "board" that is just the two founders and a board that includes an investor nominee, an independent non-executive, or an experienced chair you have recruited. The moment non-founder directors join, the risk picture shifts in two ways.

• More people carry personal exposure. Every director on the board owes duties and can be named in a claim — so the number of individuals relying on protection grows.
• Good directors expect it. Experienced non-execs and investor nominees frequently decline to join a board without D&O in place. They have seen claims happen and will not put personal assets on the line without cover. Offering it can be the difference between landing the chair you want and losing them.

So if you are actively recruiting board members, treat D&O as part of making the seat attractive, not as an afterthought once they have signed.

Trigger 4: Your profile and regulatory exposure are rising

Growth changes your risk surface even when your cap table does not. As you scale, you employ more people (which raises the chance of an employment-related claim naming a director), you sign larger customer and supplier contracts, you handle more data, and in some sectors you move into regulated territory. A fintech applying for authorisation, a health-tech handling sensitive records, or any business that suddenly has a public profile all carry more of the kind of exposure D&O responds to.

Employment claims are worth calling out specifically, because they are among the most common triggers for a D&O claim at growing companies — think allegations of unfair dismissal, discrimination or harassment brought against a named director. The more people you employ, the more this matters. It is also a reason to make sure your Employers' Liability cover is correctly in place, since that is the legally required piece once you have staff.

Trigger 5: US investors or US operations

Anything that connects your company to the United States tends to raise the stakes sharply. The US is a more litigious environment, and US investors are acutely aware of director exposure — so they very often insist on D&O, and on cover that specifically contemplates US-based claims. If you take money from a US fund, open a US subsidiary, hire US staff, or list on a US exchange, D&O usually moves from "sensible" to "expected".

US exposure also affects how the cover is arranged, not just whether you have it. Policies can be structured differently for companies with US operations, and the terms in this area are specialist and vary between insurers, so this is one to work through with a broker rather than buy off a comparison screen. If the US is on your roadmap, factor D&O into the plan early.

So — do we need it yet?

Put the triggers together and a simple test emerges. You are probably ready for D&O if any of these are true:

• You are raising, or about to raise, a priced round — especially Series A or later.
• A term sheet or shareholders' agreement requires it.
• You are adding investor nominees or independent non-executive directors to your board.
• Your headcount, contracts, data or regulatory footprint have grown materially.
• You have US investors, a US entity, or US operations on the near horizon.

If none of those apply — you are two founders, pre-revenue, bootstrapped, no outside board and no US angle — it is reasonable to wait, provided you know that the day a round or a serious hire arrives, D&O should come with it. The mistake we see is not "buying too early"; it is discovering during a closing that cover was needed weeks ago. Because the right answer depends on your exact stage and cap table, this is genuinely a conversation worth having rather than a box to tick.

One practical note on limits: term sheets and investors sometimes reference a limit of indemnity — you will hear figures like £1m, £5m or £10m mentioned as options. Treat those as illustrative starting points to discuss, not a one-size-fits-all answer. The right limit depends on your round size, sector, board composition and any US exposure, which is exactly the sort of thing a broker helps you calibrate.

What to have ready when you do buy

When the time comes, having a few things to hand makes the process quick and the quote accurate: your latest company accounts or management figures, details of any funding raised and any planned, your board composition (including incoming directors), headcount, and whether you have any US operations or investors. If a term sheet specifies a required limit or particular wording, share that too — it saves going back and forth. If you are weighing this up alongside the rest of your programme, our guide to startup insurance by funding stage shows how D&O fits with the other cover founders typically add as they grow.

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.