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By Brett Vogeler | January 2026
In our last newsletter, we exposed the earnout epidemic: 60% of sellers walk away with less than 100% of their promised earnout. Buyers go bankrupt. Milestones get missed. Accounting games destroy EBITDA targets. Integration kills revenue.
But here's what we didn't tell you: there's insurance for that.
It's called Contingent Purchase Price Insurance (a.k.a. "earnout insurance"), and it's quietly transforming how sophisticated sellers protect their deal value. Instead of crossing their fingers and hoping the buyer plays fair, they're writing a check for 2–4% of the earnout and buying a guarantee.
This newsletter is your complete playbook: what it is, what it costs, when it works, when it explodes, and how to actually get it.
2-4%: Premium cost of earnout value (down from 4-6% in 2022)
$150M: Max policy size from Munich Re
5 Weeks: Typical underwriting timeline
67%: Claims paid in full (Munich Re data)
What Earnout Insurance Actually Is (And What It's NOT)
THE REAL DEFINITION
Earnout insurance is a transactional risk policy that pays the seller if:
An objective milestone is met (revenue target, FDA approval, customer contract), AND
The buyer refuses to pay or cannot pay (bankruptcy, disputes calculation, re-trades)
What It Is NOT:
✗NOT a performance guarantee – The policy won't pay if you miss the revenue target
✗NOT included in standard R&W insurance – R&W excludes "purchase price adjustments and contingent consideration"
✗NOT cheap insurance – Budget 2–4% of earnout face value
✗NOT available for subjective metrics – "Maintain growth momentum" won't fly; insurers need objective triggers
✗NOT a replacement for good deal structure – You still need clear definitions, accounting policies, and no-harm covenants
"Think of it as seller-side reps & warranties insurance for the price piece. It protects against buyer breach, not seller underperformance."
How It Actually Works (The Mechanics)
Standard Policy Structure:
Insured Party | Seller (or shareholder representative) |
Policy Term | Earnout period + 6–12 month claims tail |
Sum Insured | 80–100% of earnout cap |
Trigger Event | Objective milestone achieved + buyer non-payment |
Deductible | 0.5–1% of deal value (can be wrapped into premium) |
Premium | 2–4% of earnout face value |
Real-World Pricing (What You'll Actually Pay)
Example: $10M EBITDA Deal with $3M Earnout (24-Month Revenue Target)
Sum Insured: | $3,000,000 |
Rate (2.5%): | $75,000 |
Underwriting Fee: | $10,000 |
Broker Fee: | $15,000 |
TOTAL COST: | ≈ $100,000 (1% of deal value) |
Rule of Thumb: Budget 1–2% of earnout face value for deals >$25M; 2–4% for deals <$10M (minimum premiums apply).
Who Actually Sells This Stuff (The Tiny Market)
Only a handful of carriers will touch standalone earnout risk. Here's the current market as of Q4-2025:
Carrier / MGA | Max Line | Min Premium | Notes |
|---|---|---|---|
Munich Re (Transactional Risk) | $150M | $150k+ | Leads 90% of bound deals |
AXA XL (Contingent Capital) | $100M | $125k+ | Will quota-share with Munich |
Zurich (T-Risk) | $75M | $100k+ | Newer book, conservative |
Chubb (Contingent Liability) | $50M | $100k+ | Often pairs with RWI |
Hiscox/Beazley (Syndicate) | $25M | $75k+ | Smaller deals, London market |
CFC (MGA) | $15M | $50k+ | Tech-enabled, 4-week bind |
CRITICAL REMINDER:
Traditional R&W insurance DOES NOT cover earnout disputes. It excludes "purchase price adjustments or contingent consideration" per standard exclusion 4(b). You need a separate contingent-risk policy or a carve-back endorsement (rare and expensive).
What's Covered vs. What Blows Up
✓ COVERED CLAIMS (What the Policy Pays)
✓Buyer insolvency or bankruptcy – Policy pays even if buyer has zero assets
✓Buyer refusal to pay after objective milestone certified – Court judgment confirms milestone met; policy pays while buyer appeals
✓Third-party trigger failure outside seller control – FDA non-approval if policy includes "regulatory milestone extension" language
✓Calculation disputes where seller is right – Arbitrator confirms revenue target hit; buyer disputes accounting; policy pays
✓Buyer breach of no-harm covenant – If buyer fires sales team in bad faith to kill earnout
✗ STANDARD EXCLUSIONS (What the Policy Won't Pay)
✗Seller fraud or material misrepresentation – You lied in reps; no coverage
✗Milestone not met (performance risk) – Revenue target was $10M, you only hit $8M; policy doesn't pay the gap
✗Buyer operational changes allowed under purchase agreement – No "no-harm" covenant breach if integration was contractually permitted
✗War, sanctions, change in law – Government outlaws your product category
✗Known litigation or investigations – Issues disclosed in dataroom at signing
✗Subjective milestone disputes – "Maintain growth momentum" or "best efforts" language = no coverage
The Pros & Cons (Straight Talk)
FOR SELLERS: The Upside
✓Converts uncertain paper into bankable value
✓Removes buyer credit risk
✓No personal guaranty or collateral required
✓Can be assigned to investors or rolled into seller financing
✓Boosts IRR and enables cleaner exit planning
FOR SELLERS: The Downside
✗2–4% cost comes off net proceeds
✗Still need to prove milestone met – policy won't pay if you miss target
✗Underwriters impose reporting covenants (monthly KPI certifications)
✗Claims process can take 8+ months
✗Not available for subjective or EBITDA-heavy metrics
FOR BUYERS: Why They Should Care
THE UPSIDE:
Closes valuation gap without increasing Day-1 cash outlay
Reduces post-closing drama – seller's downside now insurer's problem
Makes financing easier – lenders like insured cash-flow streams
THE DOWNSIDE:
Premium often pushed to buyer (seller says "you want the cover, you pay")
Underwriters scrutinize buyer's operational latitude – may restrict integration moves
Large deals (>9-figure) may require buyer indemnity back-stop anyway
How to Actually Get It (The 5-Week Roadmap)
1 Non-Bind Indication (48 Hours)
Submit teaser + high-level earnout mechanics. Carriers provide preliminary pricing and appetite confirmation.
2 Dataroom Deep Dive (7-10 Days)
Underwriters review milestone history, customer contracts, accounting policies, financial statements, and purchase agreement drafts.
3 Actuarial / Third-Party Validation (7 Days)
Option pricing or Monte-Carlo simulation if metric is financial; regulatory timeline analysis if FDA/approval-based.
4 Legal Review (5 Days)
Purchase agreement redlines, dispute forum analysis, covenant adequacy assessment.
5 Bind & Invoice (3 Days)
Policy issued day before or day of close. Premium wired same-day.
Documents You'll Need:
Draft APA with earnout mechanics defined
Milestone definition and historical achievement data
3-year historical financials (audited preferred)
Customer pipeline and contracts (if revenue-based)
Quality of Earnings (QofE) report
Any prior earnout disputes or litigation
Accounting policies manual
The Broker Playbook: How to Position This
One-Minute Script for Sellers:
"Earnouts are now in 1 of every 3 lower middle-market deals. Think of earnout insurance as 'seller paper with a guarantee'—but it's only a guarantee if you control the scoreboard."
"We're going to lock in objective metrics, short timelines, and buyer covenants so you actually get paid. The insurance costs 2–4% of the earnout, but it converts 'maybe money' into bankable cash. Otherwise, 60% of sellers walk away with zero on the earnout piece."
One-Minute Script for Buyers:
"Earnouts let you pay tomorrow for performance you hope to see today—but if the metric is gamed or the seller can't hit it because of your integration choices, you'll end up in Delaware court writing 8-figure checks."
"Earnout insurance removes that risk. The seller gets certainty, you get operational flexibility, and the lender gets comfort. The premium is 2–4% of the earnout face—small price for eliminating post-closing litigation risk."
When to Pitch Earnout Insurance:
✓Seller insists on full price but buyer balks at Day-1 cash
✓Milestone is third-party verifiable (FDA approval, customer contract, regulatory clearance)
✓Buyer is PE-backed or strategic with history of earnout disputes
✓Earnout exceeds 20% of purchase price and seller needs bankable value
✓Deal includes management rollover equity – seller staying on board and wants downside protection
When NOT to Waste Your Time:
✗Earnout based on subjective metrics ("maintain growth momentum," "best efforts")
✗EBITDA-heavy earnout where buyer controls denominator and numerator
✗Earnout <$500k – minimum premiums don't make economic sense
✗Seller not willing to spend 2–4% of earnout face on premium
✗No objective milestone defined yet – lock in metrics BEFORE approaching underwriters
Real-World Scenarios: When It Works & When It Doesn't
✓ SCENARIO 1: SaaS Company with ARR Target (WORKS)
Deal: $8M EBITDA SaaS business, $15M upfront + $5M earnout (24 months, 15% ARR growth)
Why It Works: ARR is objective, third-party auditable, and seller can prove achievement with subscription data
Premium: 2.5% = $125k
Outcome: Company hits 18% ARR growth; buyer disputes calculation methodology; policy pays $5M while dispute resolves
✓ SCENARIO 2: Medical Device with FDA Clearance (WORKS)
Deal: $12M upfront + $8M earnout contingent on FDA 510(k) clearance within 18 months
Why It Works: Binary, objective trigger (FDA approval yes/no) outside both parties' control
Premium: 3.5% = $280k (regulatory risk premium)
Outcome: FDA delays clearance to month 20; buyer refuses extension payment; policy pays $8M
✗ SCENARIO 3: Manufacturing Co. with "Adjusted EBITDA" (DOESN'T WORK)
Deal: $10M upfront + $4M earnout if "adjusted EBITDA" hits $6M in Year 2
Why It Fails: Buyer controls expense timing, capex classification, add-backs – too much discretion
Underwriter Response: "We can't insure accounting judgment. Revise to revenue-based or gross margin."
Result: No coverage available at any price
The Bottom Line for Brokers
Key Takeaways You Can Use This Week:
1. Earnout insurance is NOT mainstream – Market is tiny (~200 policies/year) but capacity is up and pricing is down 25% since 2022
2. Only works if milestone is objective – Revenue, customer contracts, FDA approval YES. "Maintain momentum" or adjusted EBITDA NO
3. Budget 1–2% of earnout face in seller's net-proceeds model – Buyers rarely pick up the tab on smaller deals
4. Lock it in BEFORE final APA – Carriers hate last-week surprises; start underwriting during LOI phase
5. Pitch it when seller needs certainty – Works best when (a) seller insists on full price, (b) buyer balks at cash, (c) milestone is verifiable
"In a market where 60% of earnouts pay <100%, earnout insurance is the difference between 'maybe money' and guaranteed cash. It won't fix a bad deal structure, but it will protect a good one."
What To Do This Week:
Audit your active listings – Which deals have earnouts >$500k with objective milestones?
Contact a transactional risk broker – Munich Re, AXA XL, Zurich all have specialist teams
Update your seller education deck – Add "earnout insurance" as a value-protection option
Build it into LOI negotiations – Flag early so buyers/sellers can factor premium into economics
Partner with M&A insurance brokers – They'll co-market and send you deal flow
The buyers paying premiums today want certainty. The sellers getting top dollar are the ones who insured their earnouts.
Don't let your clients be in the 60% who walk away empty-handed.
Brett Vogeler is a business broker specializing in lower middle-market M&A transactions. With extensive experience in deal structuring, earnout negotiations, and risk mitigation strategies, Brett helps sellers maximize value while minimizing post-close litigation risk.
This newsletter is part of an ongoing series on emerging M&A trends affecting the $2M-$50M deal market.
© 2026 Brett Vogeler | Business Broker Newsletter
For educational purposes only. Not legal, tax, or investment advice. Consult qualified professionals for your specific situation.
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