What Does W&I Insurance Cost, and When Is It Worth It?

We've already covered what W&I insurance covers. But the question most sellers actually want answered is: what does it cost — and is it worth the money?

What does W&I insurance typically cost?

The premium is typically between 1 and 2% of the insured amount (the so-called "limit of liability"), depending on the transaction's complexity, industry, and how thorough the due diligence process has been. There's also usually a one-off fee for the insurer's own review of the warranties.

When does the expense make sense?

For clean exits

If you're selling the entire business and want to avoid being on the hook for potential warranty claims for years afterward, the insurance can be worth it — you get a cleaner exit.

For deals with multiple sellers

If several owners are selling together, a shared policy can be far simpler than negotiating individual warranty liability among yourselves.

For private equity acquisitions

Private equity firms often use W&I insurance as standard, because it makes it easier to close the deal quickly without lengthy negotiations over warranty caps.

When doesn't it make sense?

For smaller deals, the premium and the associated cost of the insurer's own review can simply be disproportionate to the size of the deal. Here, a normal negotiated warranty cap in the transfer agreement is often the more practical choice.

Who pays in practice?

It varies and is part of the negotiation — sometimes the buyer, sometimes the seller, sometimes shared. What matters is that it's explicitly agreed and factored into the overall transaction cost.

Frequently asked questions

Is W&I insurance only relevant for large deals?

It's most often used for medium-to-large deals, but the market for smaller transactions has grown — check with your advisor whether it's relevant at your size.

Does the insurance cover everything I warrant?

No, known risks and matters uncovered in due diligence are generally excluded. The insurance typically only covers unknown breaches of the warranties.

Can I negotiate the price of the insurance?

Yes, to some extent — as with other insurance, the price depends on the risk assessment. Multiple quotes from different providers can secure a better price.