Directors and officers insurance, or D&O, exists to answer a question that would otherwise stop good people from serving: if a decision I make as a director or executive leads to a lawsuit, is my own money at risk? For companies that want capable boards, especially as they raise capital, D&O is often not optional.
D&O protects individual directors and officers, and often the company itself, against claims arising from their management decisions: allegations of breach of duty, mismanagement, misrepresentation, or similar. Claims can come from investors, employees, regulators, or competitors, and the defense costs alone can be ruinous to an individual. D&O steps in where personal liability would otherwise fall on the person.
Experienced directors and outside board members frequently will not serve without it, and investors commonly require a company to carry D&O as a condition of funding. As a company takes on outside capital and outside directors, the exposure grows, which is why D&O typically enters the picture around the time of a priced financing round.
D&O policies have distinct insuring agreements covering individuals, the company's reimbursement of them, and sometimes the entity itself, with limits and exclusions that reward careful reading. Sizing it to the company's stage, its investors' expectations, and its real exposure is the task. It is a coverage best matched to the company as it grows.
Good boards need it. So do the people on them.
This is general information, not personalized insurance advice. Coverage terms, definitions, and availability vary by policy and provider.