AS | Ankit Sarawagi|Founder, CFOmatrix·August 2026·10 min read | Business Insurance |
You close your seed round, welcome an investor’s nominee to the board, and somewhere in the shareholders’ agreement is a line most founders skim past: the company shall maintain directors and officers liability insurance. That one clause is why D&O is usually the very first insurance a funded startup buys.
D&O insurance, short for directors and officers liability insurance, protects the people who run your company against claims made against them personally for how they managed it. Unlike most business cover, which is driven by customers and contracts, D&O is driven by your investors: they appoint a nominee director and want that person, and your founders, protected. This guide covers what D&O covers, why it is a term-sheet condition, the Side A/B/C structure, the retroactive date and runoff cover, and how much to buy at seed.
- What it is
- Cover that protects directors and officers personally against claims for wrongful acts in running the company.
- Who drives it
- Usually investors: a common term-sheet or shareholders’ agreement condition to protect their nominee director.
- When to buy
- At the seed stage, when you take your first institutional round and board seat.
- Indicative cover
- ₹1 crore to ₹5 crore at seed, stepped up each year and each round (indicative only).
- Key features
- Side A/B/C, a retroactive date, and runoff cover at exit or IPO.
1 What does D&O insurance cover?
D&O insurance covers your directors and officers against claims made against them personally alleging a wrongful act in the course of managing the company. A wrongful act is defined broadly and typically includes breach of duty, breach of trust, misstatement, misleading statements, neglect, mismanagement and errors of judgement. The point is that a director’s personal assets, not just the company’s, can be on the line, and D&O is what stands between a claim and their home.
A typical policy responds to claims from a range of sources:
- Investors and shareholders alleging a breach of duty, misrepresentation or a bad decision.
- Regulators such as the MCA, SEBI or tax authorities bringing an action or investigation against directors.
- Employees alleging wrongful dismissal, discrimination or harassment at the leadership level.
- Creditors, customers or competitors alleging mismanagement, misrepresentation or unfair conduct.
Crucially, the policy pays defence costs as they are incurred, not just final settlements or damages. Defence costs alone can dwarf the eventual outcome, because even a claim that goes nowhere still has to be answered by lawyers. What D&O does not cover is the obvious: deliberate fraud, dishonest acts and illegal personal profit, once these are actually established. It also does not cover bodily injury, property damage or the professional services you sell to clients, which sit under other covers such as general liability and professional indemnity.
2 Why investors mandate D&O
Here is the part founders miss. Most startup insurance, medical, cyber, general liability, is driven by customers and business need. D&O is different: it is driven by your investors. When a VC or institutional fund writes you a cheque, it almost always takes a board seat by appointing a nominee director. That nominee is now personally exposed to claims arising from board decisions, and the fund is not willing to let its partner carry that risk uninsured.
So the fund makes D&O a condition. You will typically see it in the term sheet and then hard-coded into the shareholders’ agreement as a covenant: the company must take and maintain D&O cover of a certain minimum limit, often naming the nominee as an insured. In practice it becomes a condition of closing, the round does not complete until the policy is in place. It protects the nominee, but it also protects your founders and every other director on the same policy, which is why it is worth buying properly rather than as a box-tick.
3 Side A, Side B and Side C
A D&O policy is built from three insuring clauses, usually called Sides. Understanding them helps you read a quote and know what you are actually buying.
| Clause | Who it protects, and when |
|---|---|
| Side A | Covers the individual directors and officers directly when the company cannot or does not indemnify them (for example, if it is insolvent or legally barred from indemnifying). This is the core personal protection and the part a nominee director cares about most. |
| Side B | Reimburses the company when it has indemnified its directors and officers. The individual is made whole by the company, and the insurer then repays the company. |
| Side C | Entity cover: covers the company itself for certain claims made against it directly, most commonly securities claims. Scope is narrower and is negotiated. |
Most funded startups buy all three, but the non-negotiable heart of the policy is Side A, because that is what still responds when the company itself cannot step in. When you compare quotes, look past the headline limit and check how the three Sides are structured and whether Side A has any dedicated or ring-fenced limit.
4 Retroactive date and runoff cover
D&O is a claims-made policy. That is the single most important thing to understand about it. It responds to claims first made against you during the policy period, regardless of when the underlying act happened, rather than to acts that occur during the period. Two features flow from this, and both matter at renewal and at exit.
Retroactive date
The retroactive date is the date from which past wrongful acts are covered. A claim made today for a decision taken two years ago is only covered if your retroactive date reaches back far enough. When you renew, or switch insurers, you want to preserve your original retroactive date so you do not lose cover for your earlier years. Letting the policy lapse, or accepting a later retroactive date on a new policy, can quietly open a gap for your entire past tenure.
Runoff (tail) cover
Runoff cover, also called tail cover, extends your ability to report claims after a trigger event, for acts committed before that event. The classic trigger is an exit: a sale, a merger, or an IPO. After the deal, the old policy stops, but claims about your years in charge can still surface. Runoff keeps that reporting window open, commonly for six to seven years, so outgoing directors stay protected for their past decisions. Acquirers and bankers routinely require runoff to be purchased as part of the transaction.
5 When to buy, and how much
The practitioner answer is simple: buy D&O at the seed stage, the moment you raise your first institutional round and take on a nominee director. You do not need it as a bootstrapped, founder-only company with no outside board, but the day an investor joins your board, the need is real and usually contractual.
Start small and step it up. At seed, an indicative sum insured of ₹1 crore to ₹5 crore is a common starting band. Then raise the limit each year and each funding round as your headcount, revenue, contracts and board complexity grow, because your exposure grows with them. A Series B company with a larger board, more employees and bigger contracts carries far more D&O risk than it did at seed, and its limit should reflect that.
The numbers above are indicative ranges only, not a recommendation or a guarantee of cover. The right limit and terms for your company depend on your investors, your contracts, your sector and your risk profile, and should be set with a licensed broker.
6 How startups actually buy it
Most startups buy D&O through an IRDAI-registered insurance broker. That includes the newer insurtech platforms (for example Plum or Onsurity) that bundle D&O together with group health and cyber cover on a single dashboard and help handle claims. A good broker earns their keep here, because D&O wordings vary a lot between insurers and the differences (Side A structure, exclusions, retroactive date, runoff terms) are exactly what you cannot see from the premium alone.
Brewly Pvt Ltd, a Bengaluru D2C coffee startup, raises a ₹6 crore seed round. The lead fund appoints a nominee to Brewly’s board and the shareholders’ agreement requires D&O cover of at least ₹2 crore as a condition of closing. Through an IRDAI-registered broker, Brewly binds a ₹2 crore D&O policy with Side A, B and C cover before the round completes. The premium is modest at this size, and it protects the nominee, the two founder-directors and the CTO who is an officer of the company.
Two years on, Brewly raises Series A. Headcount has gone from 12 to 70, it now has enterprise supply contracts and a second institutional investor on the board. Brewly steps its D&O limit up from ₹2 crore to ₹7 crore at renewal, keeping the original retroactive date so its seed-era decisions stay covered. When Brewly is later acquired, the buyer requires a six-year runoff policy so the outgoing directors remain protected for claims about their tenure long after the deal closes.
7 Your D&O checklist
- Read the insurance covenant in your term sheet and shareholders’ agreement, and note the minimum limit and any runoff requirement.
- Buy D&O at the seed stage, in place as a condition of closing the round.
- Engage an IRDAI-registered broker and compare wordings, not just premium.
- Confirm the policy includes Side A, Side B and Side C, with Side A protection for individuals.
- Set an indicative starting limit (around ₹1 crore to ₹5 crore at seed) with your broker, based on your investors and contracts.
- Preserve the retroactive date at every renewal so past years stay covered.
- Step the sum insured up each year and each funding round as the business grows.
- Arrange runoff (tail) cover at any exit, sale, merger or IPO, typically six to seven years.
- Keep the policy document, endorsements and renewal receipts filed for due diligence.
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Startup Insurance Need Checker (free tool) →
AS | Founder, CFOmatrix | Finance Strategy & Compliance CFOmatrix helps Indian startups build finance, tax and compliance functions that stand up to investor due diligence, from process and controls to the filings and the numbers behind them. |
Disclaimer: This article is general information as of August 2026 and is not insurance, legal or professional advice. It does not recommend any specific insurer, policy or level of cover, and the sums insured and premiums mentioned are indicative ranges only, not guarantees. Insurance products, wordings, terms and pricing vary and can change. Speak to an IRDAI-registered insurance broker or a qualified professional to assess your own requirements before buying any policy.