What Every Business Seller Should Know About Warranty & Indemnity Insurance

If you're planning to sell your business, there's a good chance the deal will involve Warranty & Indemnity (W&I) insurance, even if nobody's mentioned it to you yet. What was once a specialist tool used mainly in large private equity deals has become close to standard practice in UK M&A. Today it's used in a large number of private company sales, including many in the £5m–£25m range that make up most of the deals we advise on.

Here's what it is, why it matters to you as a seller, and what to expect if it comes up in your transaction.

What is W&I insurance?

When you sell your business, you'll be asked to give a set of warranties which are formal promises about the state of the company, covering things like its accounts, contracts, employees, tax position, and compliance. If any of those warranties turn out to be untrue after completion, the buyer can bring a claim against you personally for the loss.

W&I insurance sits between the buyer and seller and takes on that risk.

Why it's become so common

A few years ago, W&I was mostly a private equity feature. That's changed. Buyers like it because it gives them real recourse if something goes wrong post-completion, without having to rely on chasing individual sellers, who may no longer be easy to pursue, may have limited assets, or simply may not want the ongoing relationship risk. Sellers like it for the opposite reason: it lets them walk away from the deal cleanly, without a large chunk of the proceeds held back in an escrow account for a year or two "just in case."

That alignment of interests is why it's now default practice in most mid-market UK deals, not just the large ones.

What it means for you as a seller

The main practical benefit is a cleaner exit. Rather than agreeing to a hefty indemnity escrow that ties up part of your proceeds post-completion, a W&I policy lets you take most or all of your consideration at closing, with the insurer standing behind the warranties instead of you.

It's worth being clear on what it doesn't cover, though. W&I insurance won't protect you against fraud, and it won't cover anything you already knew about and should have disclosed. Known issues identified during due diligence are typically carved out of the policy and dealt with separately, usually through specific indemnities or price adjustments. This is exactly why thorough, honest disclosure during the sale process matters: the cleaner and more complete your disclosure, the broader the cover the buyer's insurer is willing to offer, and the fewer carve-outs end up sitting back with you.

The takeaway for owners preparing to sell

If you're thinking about a sale in the next 12–24 months, it's worth having this on your radar early. The businesses that get the smoothest, most cost-effective W&I cover are the ones that go into due diligence well prepared with clean records, complete disclosure, and no last-minute surprises. That's not a coincidence; it's exactly the kind of preparation that makes any exit process faster and less stressful, insurance or not.