Warranty and Indemnity Insurance explained: buyer VS seller policies

Name: Macbeth Insurance
Address: Three Waterside Drive, Arlington Business Park, Theale, Reading, RG7 4SW, GB
Telephone: 01189165480

May 20, 2026

Warranty and indemnity insurance is a valuable tool to help buyers and sellers facilitate mergers and acquisitions because it transfers the risk of buying and selling onto the insurer.

What is warranty and indemnity insurance?

Warranty and indemnity insurance is sometimes also called mergers and acquisitions insurance (or M&A insurance) because it’s often purchased to protect the buyer and seller from misrepresentations in the Sale and Purchase Agreement as part of a merger or an acquisition. But who buys it – the buyer or the seller? What’s the difference between buyer-side warranty insurance and seller-side warranty insurance? And which policy do you need if you’re selling your small business? This blog explains the difference between traditional M&A insurance policies (designed for big-business buyers) and the new SME M&A insurance policy called Transaction Liability insurance (designed for small and medium sellers).

But before we get into buyers VS sellers, we need to talk about the elephant in the room; size.

Historically, warranty and indemnity insurance wasn’t viable for smaller business, due to high minimum-starting premiums caused by the extensive due diligence required by underwriters. In 2021, that changed.

Introducing transactional liability insurance

In June 2021, insurers introduced Transaction Liability Insurance – an affordable and fuss-free warranty and indemnity insurance specifically for SMEs and mid-corporate business owners selling a business valued under £20 million.

The biggest difference between transactional risk insurance and traditional W&I insurance (apart from the size of the transaction) is that the traditional policies are typically taken out by the buyer. Whereas policies for smaller businesses are designed for the seller.

So why does the size of the transaction affect who buys the policy?

Let’s look at each policy in more detail…

Buyer-side warranty insurance (for businesses worth £20 million or more)

When it comes to large-sale UK mergers and acquisitions, buyer-side warranty & indemnity insurance is more popular because policies provide better protection, have fewer exclusions and more standardised underwriting.

Why buyer-side warranty insurance is more popular for larger corporate transactions:

Cleaner exit for sellers: Sellers (especially private equity funds) want a ‘clean break’ with minimal post-completion liability and buyer-side W&I allows them to distribute proceeds quickly without holding large escrow amounts.
Better protection for buyers: Under buyer-side W&I, the buyer claims directly against the insurer rather than suing the seller which is simpler and more reliable.
Control over claims: Buyer-side policies give the buyer control over claims.
Broader, tailored cover: In the UK market, insurers typically offer broader terms on buyer-side policies including fewer exclusions and more flexibility in underwriting.
Competitive auction dynamics: In auctions, bidders using buyer-side W&I can offer sellers limited recourse (sometimes as low as £1 liability). That makes bids more attractive and increases deal certainty.
Pricing and underwriting efficiency: UK pricing and underwriting processes have evolved around buyer-side policies making them more standardised and efficient.
Reduced conflict post-completion: Buyer-side W&I minimises contentious disputes between buyer and seller after the deal.

Seller-side warranty insurance (for SME sales between £250k and £20 million)

For small business mergers and acquisitions, it’s more common for the seller to take out a mergers and acquisitions insurance policy (known as Transaction Liability insurance). Because when you sell a business, you may be personally liable for any accidental misrepresentations in the Sale and Purchase Agreement for up to 7 years after the transaction. So, taking out a seller-side policy protects you from innocent oversights you may have made.

Selling your small business? Seller-protect transactional risk policies are perfect for:

Sales of businesses worth between £250k and £20 million
Company owners
Shareholders exiting a business
Private equity funds selling investments

Seller polices are ideal for small business sales because:

You are protected from the financial implications of an innocent mistake in your representations.
The process is straightforward because the insurers don’t need to be involved in the buyer’s due diligence process.
You’re covered for any accidental issues discovered up to 7 years after the transaction.
It mitigates the financial risk of a buyer suing multiple shareholders.
Cover can be arranged before, during or shortly after the completion of the sale.
Premiums are affordable and start from as little as £4,000.

Buyers of small businesses can still purchase warranty and indemnity insurance though – it’s called a Fraud and Negligent Misrepresentation policy.

Fraud and Negligent Representation policies for SME sales between £250k and £20 million

Buyers acquiring a business worth under £20 million can purchase an additional Fraud and Negligent Misrepresentation policy to protect themselves against fraudulent, negligent or criminal misrepresentation by the seller (which is different to the ‘accidental’ misrepresentation which is already covered by the seller-side policy).

Buying a small business? Buyer-protect transactional liability policies are perfect for: