W&I Insurance When Selling a Business

Imagine being able to sell your business, get the full amount paid out immediately — and still give the buyer confidence that the warranties hold. That's exactly what W&I insurance does, and it's rapidly gained ground in Danish business deals in recent years.

Short answer: In a W&I-insured deal, the seller gives a broad range of warranties to the buyer, but instead of the buyer directing any claim at the seller, the claim instead goes to the insurance company. The seller thereby achieves a "clean exit" — the proceeds from the sale are the seller's, with no risk of a later repayment claim.

Why choose W&I insurance over escrow?

Without insurance, part of the purchase price would typically be withheld in an escrow or holdback arrangement for up to several years, as security for any warranty claims. With W&I insurance, the seller can instead get the full amount paid out immediately, in exchange for paying an insurance premium.

What does it cost?

The premium is typically calculated as a one-off sum based on the insured amount (the coverage) and the risk profile of the specific deal. The price should be weighed against the alternative — time and administration of a multi-year escrow arrangement — to assess whether it's worth it in the specific deal.

What does the insurance cover — and what doesn't it cover?

The insurance covers breach of the warranties defined in the transfer agreement — e.g. incorrect accounting figures, unresolved tax matters, or breach of contract the parties didn't know about. It generally does not cover matters the buyer already knew about from the due diligence process — that kind of known risk is instead handled with a specific indemnity.

When does it make sense?

W&I insurance is typically used in deals of a certain size, where the premium is proportionate to the administrative benefit and risk reduction — both for financial buyers (private equity funds) and strategic buyers. For smaller business deals, the relative cost of the insurance can make an ordinary escrow or holdback solution simpler and cheaper.