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Director or OfficerStartup business owners and investors may need more advanced liability protection. This may be because running a new business poses higher operating risks. Key among those types is directors and officers (d&o) insurance.

D&O insurance provides financial protection to those executives in the upper levels of the company. These individuals make big decisions for your business. Founders may need it prior to a funding round. Having it protects investors. It also protects the founder. Take a closer look.

Why Do Investors Insist on D&O Insurance?

Small startups may not think they need this type of coverage. They may not have the management structure in place to warrant it yet. However, as the company grows, it becomes more important. It also is important when seeking investment. Venture capitalists often require D&O insurance. Founders without it may not receive desired funding. But, why?

#1: Investors want to protect their employee

This occurs when an investor places an employee on the startup's board. The investor gives your company money. It obtains an ownership stake in the company. It places its employee on your board of directors. At that point, the investors want this employee protected. The coverage often protects the individual from lawsuits against your company. It makes sense.

#2: Investors want financial security

Investors also might insist on this coverage for their own financial protection. A problem arises, calling the company's reputation into question. Legal action takes place. Investors want to know the company has funds available to manage the legal costs. This is something D&O insurance usually offers. Without these funds, founders put the company on the line. That can be a costly mistake in the eyes of investors.

When Should You Get Coverage?

This business coverage is necessary when you begin looking for investors. It also is valuable if the startup builds a board of directors. It safeguards them from claims made against the company. Many times, you can attract top performers to the company with this coverage. Without it, there may be too much risk for an employee.

Speak to your business insurance agent. Request a quote for D&O insurance. Read through the coverage. Get to know the limits. Then, begin seeking out financial support from your investors. With this coverage, they may lend more freely. Be sure you have enough financial protection. It may not be expensive. It is often not hard to obtain. It does provide incredible support for business owners, though. Founders will need it sooner or later.

Call Sweet and Baker Insurance Brokers, Inc. at (415) 512-2100 and we can help you get information on California D&O insurance.

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