VC & PE Glossary
What Is W&I Insurance?
Updated
Definition
W&I insurance — warranty and indemnity insurance — covers breaches of seller representations in M&A, replacing or supplementing escrow holdbacks and personal liability for deal parties.
Useful for: Founders, Investors
W&I insurance (warranty and indemnity insurance) is M&A insurance that backs the representations and warranties in a purchase agreement — paying valid claims when sellers breach what they promised.
How it works
In a typical sale, buyers demand seller indemnities for breaches — IP ownership, financial statements, litigation, taxes. Sellers push back with caps, baskets, and escrows holding part of proceeds for 12–24 months.
W&I policies shift risk to insurers:
- Buy-side W&I: buyer procures; claims go to insurer instead of seller
- Sell-side W&I: seller procures; may cover buyer claims and sometimes seller defense costs
Underwriters diligence the disclosure schedules and data room. Premium often runs ~1–3%+ of policy limit; retention (deductible) applies before coverage. Known issues, fraud, and purchase price adjustments are excluded.
Growth equity and PE exits above mid-eight figures increasingly use W&I to shorten escrow fights and let founders take more cash at close.
Why it matters
- Founders: Smaller escrows and cleaner exits — if you can afford premium and survive underwriting. Material undisclosed issues kill insurability.
- Investors: Sponsors close faster with fewer post-close clawback disputes. Policy limits must still align with deal size and identified risks.
Common mistake
Assuming W&I eliminates all seller liability. Retentions, exclusions, and fraud carve-outs leave exposure — and underwriting fails if disclosure is sloppy.
Related ideas
See also warranty and indemnity insurance, escrow, and representation and warranty insurance.
Related terms
- Escrow — Escrow holds a portion of deal proceeds with a third party until conditions are met—covering indemnity claims, earn-outs, or post-close adjustments in M&A and some financings.
- Warranty and Indemnity Insurance — Warranty and indemnity insurance — the same product as W&I insurance — protects buyers and sellers in M&A when representations in the purchase agreement prove false, reducing escrow and personal indemnity exposure.
Common questions
Short answers for founders, LPs, and operators