Warranty and Indemnity Insurance Explained for Owners

Warranty and indemnity insurance is the cover that steps in when a company sale goes wrong: it pays out when the buyer discovers that something the seller promised about the business was not actually true. If you are selling your company, or buying one, the sale and purchase agreement will be full of statements (warranties) about the target’s finances, tax, contracts, staff and compliance. Warranty and indemnity insurance, usually shortened to W&I insurance, funds the claim if one of those statements turns out to be wrong, so the loss does not have to be fought out between buyer and seller personally.

This guide explains, in plain terms, what the cover does, who takes it out, what it will not pay for, and roughly what it costs, so you can judge whether it belongs in your deal.

What W&I insurance actually covers

When a business changes hands, the seller gives the buyer a long list of warranties in the sale and purchase agreement. These allocate risk: the seller is effectively saying “the accounts are accurate, the tax is paid, there is no hidden litigation, the key contracts are valid”. If one of those promises proves false after completion and the buyer suffers a loss, the buyer normally has a claim against the seller for breach of warranty.

W&I insurance covers that financial loss. It responds to breaches of the warranties, and sometimes specified indemnities, set out in the agreement. It does not replace the agreement or the due diligence; it sits alongside them and pays out, within its terms, when a covered breach surfaces. The point is to cover the unknown: problems neither side knew about when they signed.

Buy-side and sell-side policies

There are two forms, and the difference matters.

A buy-side policy is taken out by the buyer and is by far the more common. The insurer effectively steps into the seller’s shoes, so the buyer claims directly against the insurer for a breach of warranty rather than chasing the seller. That is attractive when the seller is walking away with the cash, retiring abroad, or is a fund that wants a clean exit with no lingering liability.

A sell-side policy is taken out by the seller. Here the buyer still claims against the seller in the usual way, but the seller can then recover what it has to pay from the insurer. It protects the seller’s own pocket rather than giving the buyer a direct route to the insurer.

In most modern deals the parties use a buy-side policy, often because the seller wants a clean break and offers little or no warranty recourse, with the insurer filling the gap.

What it will not pay for

W&I insurance is not a cure-all, and the exclusions are where business owners get caught out. It does not cover:

• Known issues. Anything fairly disclosed in due diligence or the disclosure letter is carved out, because insurers cover the unknown, not problems both sides already saw.
• Purchase price adjustments, completion accounts disputes or earn-out arguments.
• Forward-looking matters such as future financial performance or the accuracy of projections.
• Certain inherently uncertain risks, which are commonly excluded or need a separate, specific policy. Bespoke products exist for some of these, for example dedicated tax liability cover or, for IP-heavy businesses, intellectual property insurance arranged outside the standard W&I wording.

Because the policy is built around the disclosure exercise, thorough due diligence is not optional. The better the diligence, the broader the cover the insurer will offer.

How long the cover lasts

Policy periods are set to mirror the warranties in the agreement. General business warranties are typically covered for two to three years after completion, while fundamental warranties (such as title to the shares) and tax warranties are usually covered for up to seven years. That long tail on tax is one of the main reasons buyers value the policy: tax problems can take years to emerge.

What W&I insurance costs

Pricing is quoted as a percentage of the limit of cover (the maximum the policy will pay), not the value of the whole business. As a broad guide for UK deals, the premium tends to run from around 0.8% to 1.8% of the insured limit, with smaller deals, higher-risk sectors and cross-border structures pushing toward the upper end. The UK market has been competitive through 2024 to 2026, with more insurers active and premiums below their 2022 to 2023 peak.

On top of the premium you should budget for the underwriter’s fee, which covers their review of the deal and is commonly in the low tens of thousands of pounds for mid-market transactions, plus insurance premium tax. There is also a retention (an excess) below which the policy does not pay, which is negotiated deal by deal.

For smaller businesses, lighter “transaction liability” products have emerged aimed at sales below roughly £20 million, designed to be quicker and cheaper to arrange than a full mid-market W&I policy.

Is it worth it for your deal?

W&I insurance earns its place when a clean break matters: a seller who wants to bank the proceeds without years of contingent liability, or a buyer who would rather claim against a solvent insurer than chase an individual or a wound-up fund. It also helps competitive sale processes, because a bidder offering an insurance-backed deal can ask the seller for less personal warranty exposure. For very small or simple sales, the underwriting fee and minimum premiums can make it disproportionate, and a well-drafted agreement with a sensible cap may be enough.

If you are weighing up business cover more broadly, see our explainer on indemnity insurance and the difference between first-party and third-party cover. For authoritative background on the legal mechanics, the Law Society and your corporate solicitor are the right first ports of call, and the Association of British Insurers publishes general guidance on UK business insurance.

Frequently asked questions

What is warranty and indemnity insurance in simple terms? It is insurance that pays out when a company sale goes wrong because something the seller warranted about the business turns out to be untrue. Instead of the buyer and seller fighting over the loss, warranty and indemnity insurance covers the financial damage, within the limits and exclusions of the policy.

What is the difference between buy-side and sell-side W&I insurance? A buy-side policy lets the buyer claim directly against the insurer for a breach of warranty, which is the common choice when the seller wants a clean exit. A sell-side policy is taken out by the seller, who still faces the buyer’s claim but can then recover the payout from the insurer.

How much does warranty and indemnity insurance cost in the UK? The premium is usually a percentage of the cover limit, broadly around 0.8% to 1.8% for UK deals, with smaller or higher-risk transactions at the upper end. You should also budget for the underwriter’s fee, commonly in the low tens of thousands of pounds, plus insurance premium tax and an agreed retention.

What does W&I insurance not cover? It excludes anything already known or disclosed in due diligence, purchase price and completion accounts disputes, forward-looking projections, and certain inherently uncertain risks that need bespoke cover. It insures the unknown, so strong due diligence and disclosure are essential to getting broad terms.

How long does W&I cover last? Cover mirrors the warranties in the sale agreement. General warranties are typically covered for two to three years after completion, while fundamental and tax warranties are usually covered for up to seven years, which is a key reason buyers value the policy against late-emerging tax issues.