---
title: "What Is Warranty and Indemnity Insurance?"
term: "Warranty and Indemnity Insurance"
description: "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."
date: 2026-07-25T00:00:00.000Z
updated: 2026-07-25T00:00:00.000Z
topics: ["venture-capital"]
source: https://venturecapitaltracker.com/glossary/warranty-and-indemnity-insurance
---

# What Is 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.

**Warranty and indemnity insurance** is the full name for **W&I insurance** — coverage for breaches of seller warranties and indemnities in acquisitions and large recapitalizations.

### How it works

Purchase agreements contain extensive reps and warranties — financial accuracy, legal compliance, absence of undisclosed liabilities. Buyers demand indemnification; sellers negotiate caps, baskets, and survival periods.

W&I policies transfer claim risk to insurers after retention:

- Underwriters review disclosure schedules and management presentations
- Policies specify limit, retention, exclusions (known issues, fraud, purchase price adjustments)
- Claims process resembles other commercial insurance — notice, investigation, payment

Buy-side policies protect buyers from seller collectability; sell-side policies may also cover sellers' defense costs. Premium economics improve with repeat sponsor relationships and clean diligence.

Venture-backed exits use W&I more as deal size and sponsor involvement grow — less common in small acqui-hires, routine in PE platform roll-ups.

### Why it matters

- **Founders:** Negotiate who pays premium and whether escrows drop proportionally. Bad disclosures kill insurability or spike premium.
- **Investors:** Faster closes with fewer post-close fights over indemnity escrows — if policy limits match realistic breach scenarios.

### Common mistake

Assuming insurance covers all reps without reading exclusions. Tax, environmental, and specifically disclosed issues often sit outside coverage.

### Related ideas

See also [W&I insurance](/glossary/w-and-i-insurance), [escrow](/glossary/escrow), and purchase agreement indemnities.

## FAQ

### What is warranty and indemnity insurance in simple terms?

It is an insurance policy that pays if seller promises in the deal documents — about taxes, contracts, IP — turn out wrong. It replaces chasing individuals for every post-close claim within policy limits.

### Why does warranty and indemnity insurance matter?

For founders exiting, it can shrink escrows and speed distributions. For PE buyers, it adds claim certainty without burning management relationships needed for integration.


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Source: https://venturecapitaltracker.com/glossary/warranty-and-indemnity-insurance