3 Essential Benefits of D&O Insurance for Your Growing Business

As your business starts growing, there is an increased need for financial protection. One way to safeguard your assets is by investing in various insurance policies. Examples include commercial, general liability, business interruption insurance, etc.

Without proper insurance coverage, your growing business might face immediate financial losses and go bankrupt due to lawsuits, property damage, etc. According to Hartford, you are legally obliged to get such business insurance policies.

While these policies are mandatory, there is one underrated liability policy that growing businesses should invest in. That is the directors’ and officers’ (D&O) liability insurance policy. This policy is for your company’s board members and executive-level employees.

But why do you need D&O liability insurance? Ideally, it comes in handy when vendors, customers, and employees sue them based on allegations like reporting errors, breaches of duty, or failure to regulate. Hence, this insurance protects the board members and your company from financial losses and legal fees.

In this blog, we will discuss the three benefits of this insurance policy for growing businesses like yours.

#1. Protects Board Members’ Financial Wellbeing

In some cases, your directors and officers make business decisions that may offend stakeholders, employees, or clients. This situation could lead to potential liability lawsuits against them. Such an incident can hamper your company’s growth by using up all its financial assets.

That is where D&O insurance comes into play. This policy protects your board members from claims of wrongdoing. Examples include discrimination, mismanagement of funds, copyright infringement, failure to abide by workplace laws, etc.

In such cases, your board members are held personally liable for the legal proceedings. Therefore, their personal assets might be at risk. That is when D&O A-side coverage could protect their individual assets if your company fails to pay for the losses.

According to Oakwood D&O Insurance Brokers, all private and public companies should rely on such insurance policies to succeed in the industry. It will safeguard your management from paying hefty settlement amounts from their personal wealth.

#2. Offers Financial Stability to Your Company and Covers Losses

Since your business is growing, you cannot afford to pay hefty claims of USD 35,000 to USD 100,000 for D&O lawsuits. If you do, there is a high possibility that your business will fail.

Statistics suggest that 1 out of 5 American businesses fail within the first operational year due to a lack of capital and funding. Therefore, a lawsuit will surely bleed your corporate funds dry.

To avoid that, you need B-side D&O insurance policies. With this, your company can agree to pay the defense and settlement amounts on behalf of your board members without hurting corporate funds. This insurance will reimburse your company for all costs incurred during the lawsuit.

That means your company will not suffer financial losses due to a board member’s wrongful decisions. Hence, D&O insurance is crucial for growing businesses. It helps them bounce back from an expensive lawsuit that named board members as plaintiffs.

#3. You Can Attract New Talent and Retain Old Ones

As a growing company, you are probably looking for more members to add to your management board. This is a crucial time, and your company’s success will depend on the talent you hire.

However, many talented job seekers leave leadership roles if the company does not offer legal protection. It happens because executive board members are subjected to claims and personal financial risks. Hence, they want adequate protection from liabilities arising from making management choices.

That is where a D&O insurance policy comes into the picture. Anyone looking for executive positions considers D&O policy as a significant factor influencing their decision to reject or accept a job.

With a comprehensive D&O policy, you can give your board members personal liability protection. They will consider this financial backing for indemnification provisions. That means the company will not hold them personally responsible for the losses.

This added incentive will attract new talent and let you retain the existing board members even after legal proceedings. Your company will remain ahead of the competition by offering a unique benefits package and demonstrating commitment to good governance.

The Bottom Line

According to Forbes, lawsuits against directors and officers have become more common. Hence, 70% of them have requested that their organizations get D&O insurance coverage.

As the owner of a growing business, you should invest in this policy before your board members ask for it. All you have to do is spend approximately USD 138 or more every month. However, the premiums will depend on your claims history, policy limits, business type, company revenue, and existing debt.

Remember, D&O insurance is not a ‘one-size-fits-all’ solution. Therefore, you must find flexible insurance providers to customize this policy based on your business’s unique needs.