Author: Priya Cherian Huskins
"How much D&O insurance do I need?" is understandably one of the most common questions anyone asks when thinking about protecting individual directors and officers as well as the companies they serve.
There's no right answer per se — but there are certainly a lot of wrong answers, most of which stem from a failure to take an informed and systematic approach to the buying decision.
Here are five general questions you can explore with your trusted insurance advisor to figure out how much you should buy in Directors and Officers (D&O) insurance limits.
1. What's your risk profile?
When thinking about purchasing insurance limits, it's helpful to have a clear view of the loss scenarios you're insuring against.
Unfortunately, some folks skip past looking at their company's risk profile and just ask how much insurance their peers are buying.
Wisdom of crowds? Maybe. It's certainly understandable. Unfortunately, merely relying on peer data often leads to buying too much insurance.
Considering various probable — and even remote — loss scenarios does two things. First, it helps you scope and calibrate your risk. Second, it might lead you to identify steps you can take to mitigate these risks, so the loss becomes less likely.
For example, a review of probable loss scenarios may reveal increased exposure if employees at a new foreign sales office inadvertently engage in conduct that could be viewed as bribery of foreign officials.
This discovery, one hopes, would lead to a review of processes in that office and some additional compliance training to reinforce your company's anti-corruption policies.
The discovery might lead you to assess the costs of defending a Foreign Corrupt Practices Act (FCPA) enforcement action, as well as a follow-up securities class action and derivative suit.
Part of this exercise would be understanding which of these costs D&O insurance would or wouldn't cover, given your specific insurance policies.
2. Are you a public company?
If your company is publicly traded on a stock exchange, one of the things you'll want to examine is the securities class action settlement data.
Doing so requires working with a broker who can generate credible, customized reports for your unique company in your particular sector that include a sensitivity analysis.
At Gallagher, we rely on our proprietary databases, including Gallagher Drive® and Databox™, to provide our clients with actionable insights regarding the potential severity of D&O claims for their company.
Being able to review probable settlement values, filtered by market capitalization and other factors, can help you feel more confident when you're deciding how much insurance to buy.
As an aside, you can stay on top of general securities litigation data by following the D&O Notebook, where we publish proprietary securities class action reports twice per year. While these reports aren't a substitute for a customized analysis, they provide a good starting point.
3. Are you planning on going public soon?
Newly public companies face more litigation risk than their mature counterparts (especially securities litigation) and particularly in the first five years of being public.
But you should start thinking about your initial product offering (IPO) D&O risk well before your IPO. Many IPO suits that arise involve allegations related to pre-IPO activities. In addition, many late-stage private companies have experienced litigation as they prepare for their IPO.
For these reasons, it's a good idea to closely examine how much insurance you're buying a cycle or two before your IPO.
Most companies will buy much lower limits as private companies than as public companies. Indeed, for very early-stage private companies, you might only be able to buy $1 million to $3 million, or up to $5 million, of D&O insurance because insurance carriers may be unwilling to put up more limit for an early-stage company with no track record and few assets.
As a private company matures, however, it's useful to understand how additional limits are added. As time goes on and you're ready to buy a new insurance limit, you'll often have to make a warranty statement (e.g., if you're going from $5 million to $10 million as a private company, you'd make a warranty statement for the extra $5 million in limits).
That warranty statement affirms that you're not aware of anything that may give rise to a claim. If that warranty statement turns out to be inaccurate, the insurer may deny coverage for the affected layer.
Now imagine you're an IPO company going from $10 million in D&O insurance to $45 million.
You won't have to warranty the first $10 million of D&O insurance you're putting in place for your IPO, since you already bought $10 million as a private company.
However, the carrier will require a warranty statement to support the new, additional $35 million in insurance limits.
If you then go public and are hit with a lawsuit shortly thereafter, insurance carriers may wonder what you knew about whatever the plaintiffs were claiming before the IPO.
Since no warranty statement exists for the first $10 million of your insurance program, those questions won't impact that first $10 million of limit.
4. Should you buy extra D&O insurance to protect your balance sheet?
If you're a large private company but aren't yet planning to go public like other unicorns, you might ask if you should buy extra D&O coverage just to protect your balance sheet.
This is a great question. We know that properly setting your insurance limit can act as a natural firebreak for plaintiffs.
And if your insurance limit is too low, plaintiffs will start to look at things like the company's balance sheet, or in the worst case, the personal balance sheets of your directors and officers.
Also, as a large but still private-stage company, attracting quality independent directors becomes even more important. Directors often won't want to join a board if the company is carrying less than, say, $10 million in D&O insurance. They may also want some additional standalone Side A DIC insurance (insurance that responds for individuals when corporate indemnification isn't available), particularly if they're savvy about the risk of derivative suits.
5. Are you likely to be a target for regulators?
This question is for any company that may end up in the crosshairs of regulators like the Securities and Exchange Commission, the Department of Justice, the Federal Trade Commission and others.
If you're operating in a sector that is highly regulated, you may want to buy a little more in D&O insurance limits to protect your directors and officers. Directors and officers of regulated companies are, axiomatically, subject to regulatory scrutiny.
If you find yourself subject to a tricky government investigation, for example, because you took loans from the Department of Energy and then went bankrupt,1 you'll want the coverage.
Government involvement in a company, even just for financing purposes, has the potential to turn what might otherwise be a simple financial setback into a much more elaborate set of circumstances. In the face of regulatory scrutiny, you'll need serious legal representation.
To wrap up, these five questions are just a starting point for what one hopes is a nuanced discussion with a knowledgeable D&O insurance broker armed with data, experience and expertise.
Taking the time to answer these questions and then developing a philosophy of how you want to address these risks will go a long way to creating confidence in your D&O insurance program.
Published April 2026
