Warranty and indemnity insurance moves the cost of a broken warranty from the seller to an insurer. For a founder selling a UK company, that can decide whether the proceeds stay in your pocket or sit exposed to claims.
This guide covers how the cover works, who pays, what it costs and whether a startup-sized deal justifies it. For the contract it sits on, read our guide to the Share Purchase Agreement (SPA).
What Is W&I Insurance?
W&I insurance is a policy that pays out when a warranty given in a company sale proves false, so an insurer rather than the seller absorbs the loss.
In a typical tech exit, founders and key managers give the buyer warranties about the business and a tax indemnity. If a warranty proves wrong, the buyer can claim against the sellers, and the policy covers that loss instead.
Lawyers and brokers also call the product transactional risk insurance, and the insured party is most often the buyer. Cover depends on the policy wording and its exclusions.
How W&I Insurance Works in a UK Share Sale
In a typical UK deal, the buyer takes out the policy, the seller’s warranty liability drops to a nominal amount, often £1, and claims go to the insurer.
The nominal cap is negotiated in the share purchase agreement, not automatic.
Fraud is the exception, and the seller’s liability stays in that case. Because the buyer’s main recourse is a creditworthy insurer, it can often do without an escrow or price holdback for warranty claims, although uncovered risks and exclusions may still need protection.
Policies typically allow claims for two to seven years, depending on the warranty type.
Without cover, sellers carry the tail. Contractual warranty claim periods typically run 18 months to two years, while tax claims usually run six or seven years.
Insurance substantially removes that exposure, which matters most when founders roll equity into the buyer and hold no cash to meet a claim.
Buy-Side vs Sell-Side W&I Insurance
A buy-side policy insures the buyer, who claims directly from the insurer, while a sell-side policy insures the seller against valid claims the buyer brings.
Buy-side dominates.
CMS found 96% of policies in its 2023 deals were buy-side (CMS European M&A Study 2024), and Orrick says sell-side cover remains available where a buyer is unwilling to engage.
For founders, a buy-side policy can make claims more straightforward because the buyer claims directly against the insurer, subject to policy terms.
Exclusions, fraud and other retained liabilities may still leave sellers exposed.
Who Pays for W&I Insurance?
The buyer usually pays for W&I insurance, but sellers often fund part or all of it, commonly through a deduction from the purchase price.
In CMS’s 2023 deals, the seller paid the premium in 11% of W&I deals, and the other party shared the cost in 35% of them, typically covering 25–50% of it (CMS European M&A Study 2024).
Treat the split as a negotiating point. Orrick advises raising W&I at term sheet stage, when sellers have the most leverage.
How Much Does W&I Insurance Cost?
UK W&I insurance premiums typically range from 0.5%–2% of the amount insured. The total M&A insurance cost can also include 12% Insurance Premium Tax, underwriting fees and broker fees.
The rate applies to the amount insured, so you pay it on a slice of the deal rather than the full price.
The retention is the first portion of any loss that stays uninsured, and the de minimis sets the smallest claim the policy will consider. Minimum premiums can make cover relatively expensive on smaller deals, so ask a broker for an indication first.
What W&I Insurance Excludes
W&I insurance exclusions cover what the buyer already knows, anything fairly disclosed in the deal documents, and a set of standard carve-outs.
Paul Hastings lists the standard UK exclusions as including:
- The buyer deal team’s actual knowledge
- Matters fairly disclosed in the transaction documents, data room or diligence reports
- Fines that are uninsurable by law, and sanctions
- Defined benefit pension underfunding
- Leakage and purchase price adjustments
- Forecasts
- Fransfer pricing and secondary tax liabilities
Insurers decide other areas case by case, including anti-bribery and corruption, product liability and cyber.
Disclosed matters are generally excluded from cover.
If the buyer wants protection against those risks, the parties may negotiate separate indemnities, seller recourse, an escrow or holdback, or a price adjustment.
Is W&I Insurance Worth It for a Startup Sale?
W&I insurance is less common on smaller deals: CMS found it in 4% of European deals under €25m, against 38% of deals worth €25m to €100m.
These are historical figures for 2023 deals, not current adoption rates.
The UK uses W&I more than most, with cover on 30% of CMS’s UK deals, and 47% of European deals above €100m carried a policy.
There is no universal minimum deal size.
Published estimates run from about £5m of enterprise value to a €20m rule of thumb, but they come from different sources and periods. Smaller deals may work depending on the insurer, the policy structure and minimum premiums.
Orrick says W&I is becoming more common in UK tech exits.
On smaller deals the premium often loses out to a retention from the price, which 41% of CMS’s small deals that used security for warranty claims chose. Ask your adviser early whether transactional risk insurance fits your deal.
How to Arrange W&I Insurance
Raise W&I insurance at term-sheet stage, before granting exclusivity.
The process can take several weeks, depending on the transaction, the quality of due diligence and how quickly the parties answer underwriting questions.
Paul Hastings outlines a typical timeline: broker engagement two to three weeks before signing, an underwriting questionnaire one to two weeks before, and an underwriting call three to five days before. The policy is generally bound at signing or completion.
Ask a broker for an indication and your solicitor for advice before budgeting.
Conclusion
Ask your solicitor about W&I insurance as soon as a buyer sends a term sheet, particularly if you are rolling equity or want a clean exit.
Check the premium against the amount insured, read the exclusions before you rely on the cover, and test whether your deal can carry the cost. If it cannot, a retention from the price is the usual alternative.
FAQs
1. How much does W&I insurance cost?
UK premiums typically range from 0.5%–2% of the amount insured, plus 12% Insurance Premium Tax, underwriting fees and broker fees. The limit is often 20%–40% of enterprise value, so the M&A insurance cost scales with that slice of the deal.
2. Who pays for W&I insurance in a UK company sale?
The buyer usually pays, but sellers often cover part or all of it through a price deduction. In CMS’s 2023 deals, sellers paid the premium in 11% of W&I deals, and the other party shared the cost in 35%.
3. Is W&I insurance worth it for a small startup sale?
Often it is not at small deal sizes. CMS found W&I in 4% of European deals under €25m and suggests the premium is hard to justify there. There is no universal minimum, so get a broker’s quote first.
Also Read: What Is a Knowledge Intensive Company? EIS Status, Criteria and Limits Explained
Sources: Figures and thresholds drawn from Paul Hastings with Howden (September 2026), Orrick (March 2026), the CMS European M&A Study 2024 (2023 deals), GOV.UK Insurance Premium Tax rates, Weightmans, GIDE (2022), IGCP and CMS Funds Group.
The EP+ Editorial Desk covers UK startups, founders stories, and venture capital. All editorial content is independently produced and human-reviewed before publication.
