The One Risk Women Entrepreneurs Should Never Make

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Today women own 38 percent of all small businesses! Compare that to a mere five percent 50 years ago.

We've met the demands of starting businesses and meeting challenges head on. But don't push business insurance to the back burner, assuming that it's something only large corporations need to worry about.

What is D&O Insurance?


When you're just starting your business, you have to make difficult decisions every day. And when you are making a difficult decision about what is in the best interest of your company, you can't have concerns about a potential lawsuit in the back of your mind. That is why you can't afford to overlook D&O insurance.

Directors and officers (D&O) insurance will protect the directors and officers of your company in the event that one of them is sued (when acting in the capacity as director or officer for the company). D&O insurance also offers protection to your company by providing reimbursement for any lawsuits brought against company executives.

Some insurers will even expand D&O policies to protect individual serving in other capacities such as lawyers and advisory boards.

Why Do I Need D&O Insurance?


Many startups get D&O insurance because it is usually a requirement to secure VC funding. It is often a standard term of the agreement but there's a good reason why VC's require D&O insurance.

The potential for D&O liability is higher with startups for several reasons. Startups often have to act fast which means that directors often have to make decisions quickly without evaluating all the risks involved.    

Startups can often go through multiple directors in the beginning before solidifying their core team of executives. And while your investors may require D&O insurance for their own protection, it will protect your company as well so it is a win for everyone involved.

Another reason to get D&O insurance is to make it easier for your company to bring on new talent. Your odds of recruiting an industry leader or board member are much higher if that person knows they can make crucial decisions without the threat of a lawsuit.

If none of those reasons move you, consider this: the average loss for companies that were hit with a D&O lawsuit in 2013 was $697,902.

What Does D&O Insurance Cover?


Coverage will vary depending on your policy but it will always protect the personal assets of company executives and board members. D&O insurance is broken down into three different "sides".

  • Side A covers direct losses of directors and officers. These direct losses occur when the company cannot legally indemnify a director or officer.
  • Side B reimburses the company for losses when the company does have to indemnify directors and officers.
  • Side C provides coverage when claims are brought against the company itself. This is usually limited to security claims.

Getting Started With D&O Insurance


Here are a few things you should consider when shopping around for a policy:

  • Do you need any additional coverage? Most companies start out with $1M for D&O coverage.
  • Does the policy cover a range of claims?
  • Should you purchase extended coverage?

Many businesses realize that they need D&O insurance once it's too late. Don't wait until you are facing a lawsuit to look into business insurance. By talking to an insurance agent you can find out where your company may be vulnerable and what types of policies could be helpful.

As with any type of insurance, the best thing you can do is work with someone who is familiar with startups. They can look at your company's situation and make sure you get the coverage you need without over-insuring your business.

Recommended resources: For more information on business insurance, feel free to browse through leading digital business insurance brokerage and risk management platform Embroker's comprehensive insurance guides.

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