Startup insurance due diligence: what may investors review?

Startup insurance due diligence is not a standard checklist. What investors, board nominees, lenders or transaction advisers review depends on the business, the investor and the transaction. But the items that come up most often are: Directors and Officers cover, cyber insurance and security controls, Professional Indemnity or Tech PI, and claims-made continuity. Workers compensation compliance and known circumstances are also commonly reviewed.

Directors and Officers insurance may be a central issue where the funding round introduces investor-appointed directors or more formal governance. Getting deal-ready before a term sheet arrives gives you more time and avoids insurance delaying a close. upcover arranges startup and technology insurance across Australia.

What insurance information may due diligence review?

Due diligence verifies that the business is what it says it is. The insurance component checks whether the startup has appropriate cover in place and whether any gaps would affect the transaction.

Current policies, limits and documentation. A Certificate of Currency is a common summary showing that a policy is current. The information shown varies, but it may identify the policy type, insured entity, period and limit. It is a summary only and does not replace the policy schedule, wording or endorsements. Some diligence teams request policy schedules, endorsements and claims histories alongside the COI.

Insured-services description. Whether the services described in the PI or Tech PI policy match what the startup actually delivers. A mismatch may be identified for further review because the insurer will assess whether the alleged work falls within the declared services.

Claims-made continuity. Whether claims-made covers (PI, Tech PI, cyber, D&O) have been maintained continuously. A gap may affect how a later policy treats prior work, depending on retroactive dates, prior-matter exclusions and continuity provisions.

Workers compensation compliance. Whether the startup meets obligations in each relevant state or territory. Non-compliance is a legal issue, not just an insurance finding.

Limits vs contract requirements. Whether policy limits match the insurance requirements in major client contracts. A mismatch may be noted and investigated.

Known circumstances. Whether there are pending claims, threatened demands, regulatory matters, data breaches, employee disputes or other circumstances that should have been notified. Undisclosed known circumstances can affect both the current and any replacement policy.

Why may Directors and Officers insurance be reviewed during fundraising?

D&O may become a focus where the transaction introduces new directors, investor nominees or formal governance.

Board appointments create personal exposure. An appointed director assumes statutory duties under the Corporations Act. They or their advisers may ask how the company indemnifies directors and whether D&O or management liability is in place. A board observer is not automatically a director, although the observer's actual authority and influence should be reviewed separately.

Some term sheets include insurance provisions. These may appear in the term sheet itself, a side letter, a subscription agreement or a board appointment letter. Requirements may specify D&O as a condition of completion, set minimum limits, or require the policy to be bound within a stated period.

Transaction-specific checks matter. Beyond whether D&O exists, the diligence team may review: does the policy contain a change-of-control provision that could affect cover after the transaction? Will the current policy enter run-off? Are incoming investor-appointed directors covered? Are former directors still addressed? Are director indemnification deeds consistent with the policy? Are fundraising representations covered or restricted? Are defence costs within the limit or in addition?

For a deeper look at personal director exposure, see Directors and Officers insurance for startup founders.

What cyber and Professional Indemnity information may be reviewed?

D&O is not the only cover that comes up. Cyber and PI are part of the diligence conversation for technology startups.

Cyber in the data room. A diligence team may review cyber posture alongside the insurance, particularly where the startup holds customer data. A security questionnaire may ask: what data types are held, has a breach occurred, what controls are in place (MFA, encryption, endpoint protection, access controls, backups, incident-response plan), and is a cyber policy active. A current or historic notifiable data breach may require detailed disclosure and review.

Professional Indemnity and Tech PI evidence. Investors may check whether PI or Tech PI is in place, whether the insured-services description matches actual delivery, and whether claims-made continuity has been maintained. For regulated startups (fintech, healthtech), the assessment may include whether the policy meets regulatory requirements.

For more on cyber cover, see the cyber insurance for startups guide.

Which documents should go in the data room for insurance due diligence?

This table covers the most common items. Actual requirements depend on the investor, transaction type and sector.

How should a startup get deal-ready on insurance?

Leaving the review until late in the transaction may create additional work where information or policy changes are required. Here is a practical timeline.

Before formal due diligence. Review whether current cover matches what an investor may check. If there are gaps (no D&O, lapsed PI, no cyber), address them now. Gather current schedules, wordings, claims histories and known-circumstances records. Check that insured-services descriptions match actual activities. Notify any known circumstances to the current insurer in accordance with the policy — a replacement insurer may exclude matters already known.

When the data room opens. Provide current COIs, policy schedules and cyber-control evidence. Answer policy-gap questions accurately. Distinguish the COI from the full policy documentation.

When transaction documents arrive. Review insurance conditions in the term sheet, subscription agreement or side letters. Confirm required cover types, limits and timing. Check change-of-control provisions in existing policies. Determine whether run-off or replacement cover is needed.

After completion. Update directors and officers on the policy. Add new subsidiaries or entities where accepted. Review new activities, jurisdictions and client contracts. Confirm run-off for historic exposures. Retain the historic policy archive. For a full view of which covers apply at each stage, see when does a startup need insurance.

How much does deal-ready insurance cost?

There is no standard deal-ready package price. The cost depends on which covers the startup needs and the specific risk profile. The numbers below are general market indicators, not quotes.

D&O only (early-stage, small board, standard limits): from around $150 to $400 per month. See D&O insurance cost in Australia.

D&O + Tech PI + cyber (typical funded tech startup): commonly $400 to $1,000 per month depending on activities, data, limits and board structure.

Full stack (D&O, Tech PI, cyber, PL, EPL, workers comp): $800 to $1,500+ per month depending on stage, contracts and governance complexity.

These are general market indicators. Your actual premium depends on your specific circumstances.

How upcover can help

upcover arranges insurance for startup and technology businesses across Australia, with access to 80+ insurance partners.

• 70,000+ businesses covered across Australia.
• 4.9/5 customer rating.
• Certificate of Currency may be available following policy confirmation.

Have your company structure, cap table, board details, financials, current policies, major contracts, cyber controls, claims history and known circumstances ready. Then explore startup insurance in Australia through upcover. For D&O options, see directors and officers insurance. For a full startup walkthrough, see our startup insurance guide.

upcover Pty Ltd (ABN 17 628 197 437) is a Corporate Authorised Representative (CAR 1299211) of Experience Insurance Services Pty Ltd (ABN 41 657 596 506, AFSL 539078).

Frequently asked questions

What insurance do investors require before funding a startup?

Requirements vary by investor and transaction. D&O may be a key consideration where new directors join the board or transaction documents contain insurance requirements. Cyber, PI, Tech PI, workers compensation and claims history may also be reviewed. There is no universal checklist.

Is Directors and Officers insurance required before a Series A?

Some term sheets include D&O as a condition of completion. Incoming board members may want cover confirmed before accepting an appointment. Whether and when D&O is required depends on the investor. There is no universal Series A rule.

What is a Certificate of Currency and why do investors request it?

A Certificate of Currency is a common summary showing that an insurance policy is current. The information shown varies. It does not replace the policy schedule, wording or endorsements. Investors, clients and partners request it to verify the startup's insurance position.

Which insurance documents should go in a startup data room?

Current COIs and policy schedules, insured-services descriptions, and historic schedules showing claims-made continuity. Also prepare policy wordings and endorsements, workers compensation certificates, security questionnaire responses, and a register of known circumstances. See the table above for the full list.

When should a startup arrange insurance before a raise?

When fundraising becomes likely enough that new directors, diligence requests or transaction conditions may arise. Starting early gives more time to gather information and avoids insurance becoming the item that holds up a close.

Do lenders and acquirers also review insurance?

They may. Lenders may review insurance as part of credit assessment. Acquirers may review it as part of transaction due diligence. This includes whether change-of-control provisions apply and whether run-off cover is needed for the acquired company's historic liabilities.

What happens if a startup has no insurance during due diligence?

The absence of a policy may be noted and investigated. It may delay the transaction, trigger additional conditions, or affect the investor's assessment. Some term sheets make insurance a condition precedent, meaning the round cannot close until cover is confirmed.

Do startups need insurance to raise capital?

There is no blanket legal requirement. However, investors may review insurance in due diligence and term sheets may include insurance provisions. Incoming board members may want D&O confirmed. In practice, the fundraising process often makes insurance relevant even where it is not a formal pre-condition.

How much does startup insurance cost for a funding round?

D&O only may cost from around $150 to $400 per month. A funded tech startup with D&O, Tech PI and cyber commonly pays $400 to $1,000 per month. The full stack may cost $800 to $1,500+ per month. These are general market indicators, not quotes.

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This article is general information, not legal, investment or governance advice. All insurance arranged through upcover is subject to the relevant policy wording, PDS, terms, conditions, limits and exclusions. upcover Pty Ltd ABN 17 628 197 437, CAR 1299211 of Experience Insurance Services Pty Ltd ABN 41 657 596 506, AFSL 539078.