What is executive risk insurance and why do I need it?

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Executive risk insurance (aka management liability insurance) helps protect key employees, managers, board members, investors, directors, officers and business entities against liability exposures that exist when running and scaling your business.

Executive risk insurance is a "catch-all" term that's comprised of several different policies or lines of coverage. These policies can be purchased "stand-alone" or combined into a "package." These lines of coverage include:

  • Directors & Officers (D&O)
  • Employment Practices Liability (EPL)
  • Crime
  • Fiduciary
  • Kidnap & Ransom
  • Identity Fraud

What is Directors & Officers insurance?

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Directors & Officers insurance (D&O for short) protects individuals and entities listed below for claims made against them:

  • Directors
  • Officers
  • Managers
  • Board Members
  • Investors
  • Other business entities

This can include claims resulting from managerial or financial decisions that may have adverse impacts or consequences. The most common claim types that D&O insurance would protect against would be:

  • Misrepresentation
  • Theft of intellectual property
  • Breach of duty
  • Creditor suit
  • Insolvency
  • M&A

For tech startups, you'll often be required to purchase D&O insurance after raising a "priced-round" (Series A+).

What is Employment Practices Liability insurance?

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Employment Practices Liability insurance (EPL for short) protects employees, directors, officers, and managers against wrongful acts associated with employment issues. Examples of "wrongful acts" are:

  • Wrongful termination
  • Sexual harassment
  • Discrimination
  • Retaliation
  • Inappropriate workplace conduct (failing to promote, providing career progression, performance evaluation, etc.)

It's recommended to include third-party coverage to cover allegations brought from clients, vendors, suppliers, etc. as well.

What is Crime insurance?

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Crime insurance protects and reimburses your business from any financial losses due to crime events. Examples would include:

  • Employee theft
  • Forgery or alteration
  • Computer fraud
  • Fund transfer fraud

What is Fiduciary insurance?

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Fiduciary insurance protects those who are responsible for managing and administering employee benefit programs at your company. It provides coverage due to human error, omissions, and negligence. Examples of when fiduciary insurance would be used:

  • Failure to enroll in a healthcare plan
  • Improper plan advice
  • Delayed investment transfer balance between providers

What is a policy aggregate limit of liability and why do I see it on my policy?

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A policy aggregate limit of liability is the maximum amount an insurance company will pay for losses within a specified timeframe (usually the policy period). Example:

  • Your policy has an annual aggregate limit of liability of $1,000,000
  • Your business files a claim within your 1-year policy period and $500,000 is paid
  • If further claims arise during that 1-year policy period, they may be covered if they do not exceed the $500,000 left on your aggregate limit

What does having coverage for defense costs on the policy mean for me?

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Coverage for defense costs means your insurance company can provide capital to defend you and/or your business during a claim (lawyers, attorney fees, etc.) for a covered cause of loss.

It's also important to note that defense costs can deplete your total policy aggregate limit of liability. A separate limit for defense costs only is available and recommended if needed.

What is retention and how does it work?

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Retention is a specific dollar amount you must pay first before your insurance company will respond to a loss or claim you submit. If you submit a loss or claim prior to hitting the specified retention limit, you would have to pay defense and/or indemnity costs associated until the retention limit was reached.