When Should Startups Consider D&O Liability Coverage?
Posted by John Moccia on Wed, Jul 06, 2011
The acquisition of a D&O policy is often triggered by one of the following events:
- new board member requires that company has D&O
- new investor (such as a VC) requires D&O insurance as part of term sheet
Ultimately the D&O policy is the mechanism by which you will be shielding the personal assets of the officers and directors - as well as the balance sheet of the company (most company have an indemnification agreement in their bi-laws that basically translates into this: the company is responsible to cover claims against the D&O's out of its coffers...the problem comes when there is no money available or the indemnification is prohibited by law). Most people who will agree to be on your board will not be willing to risk their personal assets based on the performance of your company. You might not either.
So back to the original question - When? As soon as company is operational with a management team and board AND as soon as you can afford to transfer the risk to an insurer (minimum 
premium can be about $2,500/year)
One other important point to consider - as a private company your biggest threat of action against the management team will be from employees. D&O policies can cover employment practices claims (wrongful termination, failure to hire, discrimination...) once you have a workforce it will increase your risk and be another factor to consider when thinking about D&O insurance.