Directors And Officers (D&O) Insurance For Small Business (2024)

Your company’s decision-makers set the goals and strategies for the business. But without the proper type of business insurance, your company’s individual officers could be exposed to financial losses if they’re sued for a decision they made on the company’s behalf.

For example, accusations of mismanaged funds or a bad investment could lead to a lawsuit.

To get the best small business insurance, you may need to buy directors and officers (D&O) insurance. It’s a good way to retain leaders, cover legal fees and attract investment opportunities.

What Is Directors and Officers Liability Insurance?

Directors and officers insurance protects the people who serve as directors and officers of a company if they’re sued by employees, customers, vendors or others. It can cover defense costs, a settlement and other expenses that arise out of the lawsuit.

What Does Directors and Officers Insurance Cover?

Directors and officers insurance can help your company if the directors and officers are accused of wrongdoings such as:

• Causing a financial loss or bankruptcy
• Failure to comply with workplace laws
• Misrepresentation of company assets
• Theft of intellectual property
• Slander, libel and copyright infringement
• Mismanaged funds
• Discrimination against an employee

What Does Directors and Officers Insurance Not Cover?

Directors and officers insurance doesn’t cover everything. Here are examples of problems a policy commonly excludes:

• Illegal acts or illegal profits
• Fraud
• Personal profiting
• Pending and prior litigation
• Prior claims
• Bodily injury
• Property damage

Three Types of Directors and Officers Liability Insurance

Here’s a look at the three types of coverage typically included in a D&O policy.

1. A-side Coverage

This part of coverage will protect the individual assets of directors and officers when there are costs that the business itself does not have to pay, which could include defense costs.

2. B-side Coverage

This part is known as corporate reimbursem*nt, and it covers a business when it has to pay defense costs and legal settlements for directors and officers.

3. C-side Coverage

This part of the coverage is known as entity coverage and helps when a business is named in a lawsuit along with directors and officers. This type of coverage protects a business when there are direct claims made against it.

Who Needs Directors and Officers Liability Insurance?

Any business, public or private, with a board of directors may benefit from having directors and officers insurance.

Lawsuits targeting directors and officers are becoming more common. Without D&O insurance, the company’s assets and the personal assets of the directors and officers are at risk.

In addition, directors and officers insurance protects the personal assets of spouses of a director or officer. These assets could also be at risk in a lawsuit.

To attract and retain qualified executives and board members, a company needs to have a D&O insurance policy in place. An estimated 70% or more of all directors and officers have asked about the amount of their organizations’ directors and officers coverage, according to Travelers. Having a solid directors and officers liability insurance policy is one way to attract potential board members to a company.

D&O insurance may also help you attract investors. Some private equity and venture capital firms may require D&O coverage before they will invest in a company.

How Much Does Directors And Officers Insurance Cost?

The median cost of directors and officers insurance is $1,240 per year, according to Insureon. Your D&O costs will depend on several factors, such as:

• The business’s amount of debt
• Claims history
• Company revenues
• Policy limits
• Type of business

How to Get the Best Directors And Officers Liability Insurance

To get the best rates on a D&O policy, get quotes from several insurance companies. Be sure to work with an insurance professional who is knowledgeable about D&O coverage.

Read the D&O policy carefully and make sure you understand the coverage you are buying. Once you have a directors and officers policy in place, you’ll be able to reach out to potential board members and officers that you are looking to attract to your company.