Entrepreneurship Through Acquisition

Insurance Due Diligence Before Close: What I Wish Every Business Buyer Knew

By August Felker, Founder & CEO, Oberle Risk Strategies
Last updated November 9, 2026 · Based on my Acquiring Minds webinar, Protect the Business: How to Diligence Insurance Pre-Close

Register to view the webinar in its entirety, or browse more conversations on the Oberle Podcasts page.

Who I am

I first heard about searching around 2009, and the minute I understood the concept, I was hooked. I raised a traditional search fund called Bluebird Investment Company, and because my background was in insurance, an insurance agency was a natural target. In 2010 I acquired Murphy Insurance Group in Madison, Wisconsin, and ran it for five years. By then other people had figured out that insurance is a great business, multiples had climbed, and my board and I decided it was a good time to sell to Hub International.

I still had the energy to be an entrepreneur, so in 2019 I self-funded the purchase of what is now Oberle Risk Strategies and moved back to my hometown of St. Louis. We are a specialty insurance broker focused almost entirely on acquisition entrepreneurs. Clients call us to organize their commercial insurance, employee benefits, life insurance, reps and warranty insurance, and increasingly their personal insurance too. Our headquarters are in St. Louis, but most of our clients are spread across the country.

I have been doing insurance due diligence for about 15 years. It started because other searchers would call me and say they were buying a business and needed someone they trusted to look at the insurance. Our practice grew out of those calls.

What insurance due diligence is

It is not uncommon for me to meet someone who is buying a business and has not thought about looking at its insurance. Buyers know they need a quality of earnings, and many plan for tax and legal diligence. Insurance gets skipped, even though it can change the economics of a deal.

"Everyone knows about quality of earnings, and some people do tax and legal due diligence, but insurance is critical."

August Felker

The goal is simple. When you buy a business, you should have a clear picture of what you are stepping into from an insurance perspective, so you are not inheriting a problem you did not price in. Many of our clients are buying insurance for the first time, and the policies can be confusing, so a big part of the job is explaining what the business has and what each coverage actually does.

Commercial insurance and employee benefits

The insurance world breaks into two big buckets. Commercial insurance covers the risks of the business itself. Employee benefits cover the people who work there. A business might carry ten commercial policies or only three, depending on its industry and its risks, and many carriers specialize in a single line such as workers compensation or general liability.

Here is a quick tour of the commercial policies you are most likely to see:

• Property insures the desks, equipment, and buildings against events like fire, flood, or theft.
• Workers compensation covers employees injured on the job, and it is no-fault.
• General liability protects the business when a third party sues because someone was injured or the company's work caused property damage.
• Auto covers the company's vehicles and fleet.
• Pollution matters for businesses like manufacturers that may have had a spill in the past.
• Cyber has grown enormously since I started my career. Close to 90 percent of our clients now buy some form of it, and ransomware is the most common claim we see.
• Professional liability is similar to medical malpractice for other professions.
• Directors and officers (D&O) protects board members, and nearly all of our clients with a board buy it.
• Employment practices liability covers claims such as wrongful termination.
• Crime covers theft, and reps and warranty insurance covers the purchase agreement itself.

Employee benefits work differently. Because carriers underwrite the employees rather than the nature of the business, the plans look much more alike: health, dental, vision, short-term disability, group life, and wellness. Some small businesses buy their benefits through a professional employer organization (PEO), which bundles payroll, HR, and benefits, so you may find the benefits wrapped up in the PEO when you buy.

Eight things I wish every buyer knew

Thinking back over years of client work, I put together a list of what I wish every buyer knew about the commercial insurance side before buying a business. These are the things we look for in every review:

1. Missing coverage. The business may not carry auto, workers compensation, or cyber. Whether to add it is your business decision, but you should know.
2. Limits that are too low. Insurance is bought in limits, and a large business carrying small limits can be exposed.
3. Unusual claims history. Just like your own insurance, a business with a lot of claims will see its premiums rise.
4. Safety concerns. We look up OSHA violations online and point them out.
5. Current spend versus future spend. We show what the business pays now alongside a pro forma of what it will likely pay under you.
6. Customer contract compliance. Big customers often require specific insurance limits, and the business may not be meeting them.
7. Asset deal or stock deal. The structure changes what happens to the insurance, which I cover below.
8. The direction of costs. In most cases, insurance goes up after you buy.

Two examples show why this matters. One client was buying a portable sanitation business, and about a month before close we finally received the list of claims. It included a multimillion-dollar claim involving the fatality of a driver. The policy was coming up for renewal, so we knew premiums would go up significantly. We called the client right away, and it led them to adjust the purchase price.

Another client did a lot of work with large oil companies. After closing, they learned those customers required 10 million dollars of auto coverage, while the business carried 1 million. Buying ten times more auto insurance changed their costs, and as a new owner you want to start off in compliance with your biggest customers. Reviewing the key contracts before close, especially with your largest accounts, catches this early.

"Most times it usually goes up, and the reason is the seller had the business really thinly insured."

August Felker

Sellers are often more risk tolerant than buyers. They decide they do not need cyber or D&O. You will probably decide you want that coverage and are willing to pay more for it, so spend tends to creep up. How much it matters depends on the business. A technology company without a vehicle fleet might spend about 1 percent of revenue on commercial insurance, while a blue-collar business with a large fleet and field employees can spend well above 5 percent.

Asset deals, stock deals, and claims history

The first question we ask a client is whether the deal is an asset deal or a stock deal. We see about a 50/50 split. In an asset deal, you form a new company and acquire the assets. In a stock deal, the same company keeps rolling and you buy the equity.

"In both cases, the insurance will follow the go-forward concern."

August Felker

Some clients assume an asset deal leaves the old claims behind. It does not. If it did, anyone with bad claims could simply start a new LLC. Carriers ask about the old company's claims and operations either way. The good news is that the reverse is also true: a business with a strong claims history and good pricing can carry that forward instead of starting over.

The mechanics differ by structure. In an asset deal, commercial insurance is not assignable, so we set up all new policies under the new entity and tax ID before closing. Employee benefits, on the other hand, are typically assignable to the new entity with the right paperwork. In a stock deal, policies can often continue, but some include change-of-control language that lets the carrier walk away from a new owner. It is roughly 50/50 whether that happens.

Either way, coverage has to be in place from minute one of ownership. We have seen plenty of claims on day one. One more thing we watch for: insurance is priced on exposure figures such as sales, payroll, and vehicles. If a business does 3 million dollars in sales and its policy says 1 million, someone gave the carrier the wrong number, and it will come out in an audit when you are the owner.

Leave employee benefits alone on day one

On the benefits side, my advice is usually the opposite of what I recommend on the commercial side. We often have to change the commercial program at close. Benefits we generally want to keep rolling.

"When you buy a business, the last thing you wanna do is mess with someone's pay or benefits."

August Felker

Picture your first day as owner, telling everyone they have new doctors and new deductibles. That is not how you want to start. Instead, diligence on benefits is about understanding the plan: how much the business contributes, the cost per employee, how rich the plan is compared to benchmarks, and whether it is ACA compliant. After a few months, once you have your legs under you, you can decide whether to improve the plan for retention or bid it out to control costs.

Benefits also deserve a close look for unusual arrangements. I have seen sellers who were retiring ask the buyer to keep paying their benefits. That is hard to do because they are no longer employees, so it is something to review and adjust before close.

How the diligence process works

Most LOIs run about 90 days, and we like to start roughly 60 days in. The first month is when you are confirming this is the right business and checking that the numbers work with investors and lenders. Once you feel the deal has a better than even chance of closing, it is time to call us.

We begin with a kickoff call to learn the deal, then request the information we need. That is mostly the current insurance policies, the claims history, and a list of vehicles. Most businesses do not keep this on file, but the seller can get it from their insurance agent. Roughly 30 to 45 days before closing, we present a diligence review of everything we found.

"It's kind of a quality of earnings for insurance."

August Felker

We do not charge for the review. Everyone searching is on a budget, and we would rather be helpful at that stage. From there we quote the program to try to improve it, and in the final two weeks we handle closing logistics. Lenders will want to confirm the insurance looks right, and there are documents to sign. We do not want insurance to be a hassle. Most of the time, we become the client's broker at close.

As an independent broker, we can work with any carrier, unlike a single-carrier model. For a veterinary clinic, for example, there might be ten carriers that love that industry, and our job is to get quotes from the right ones and negotiate the best deal. Brokers are typically paid a commission of about 10 percent that is built into the premium, with no added fee. We work with US businesses and refer clients to trusted local brokers for locations in places like Canada.

Need to have versus nice to have

You can definitely buy too much insurance, so the question is where to draw the line. The first layer is whatever your lender requires. Those requirements are sometimes negotiable. I have seen SBA lenders require flood insurance on a property that was not in a floodplain, and borrowers can push back. The basics are general liability, property insurance on the assets the lender holds as collateral, auto, and workers compensation, which is mandatory in every state except Texas. Most businesses in Texas buy it anyway.

Beyond that, it becomes a series of business decisions. A blue-collar business might decide it does not need cyber, a company without a board might skip D&O, and an owner with strong controls might pass on crime coverage for now. We present each one so you know about it, and you can add coverage as the business grows.

Two coverages I push hard for are an umbrella policy and business income coverage. We had a client with a pool company in South Florida whose driver was in a bad accident. The business carried 1 million dollars of auto coverage, and the claim reached about 980,000 dollars and kept climbing. Their 1 million dollar umbrella sat on top and picked up the rest. Without it, the owner would have been paying out of pocket.

"The standard unit for insurance is a million dollars, but with inflation for all these years, it hasn't changed in years."

August Felker

We have seen auto claims of 6 or 7 million dollars, so many owners buy a 5 million dollar umbrella. Business income coverage matters just as much for companies that cannot operate after a loss, like a hotel or a manufacturer. After a covered claim, it reimburses lost income, helps you keep paying debt, and covers wages so you do not have to let people go while you rebuild. At Oberle, if our office burned down, we could all work from a coffee shop. A manufacturer cannot do that.

One more gap to understand is timing. Claims that occur before close belong on the seller's policies, but some problems, like a cyber breach, may not be discovered until after you own the business. A tail policy can cover that gap, and either the buyer or the seller may pay for it.

Reps and warranty and other newer coverage

In a purchase agreement, the seller states that the financials, the customer list, and many other facts are true. If something turns out to be untrue after close, buyers used to sue the seller or claim against an escrow or holdback. Reps and warranty insurance lets you file an insurance claim instead.

The biggest claim we have seen involved a software business. The seller presented a customer list, and after close our client learned one of the largest customers was already on its way out. I do not believe it was fraud. There is a lot of paperwork flying around in a deal. But it was material, and the claim paid about 1 million dollars. It also spared our client from suing a seller who had rolled equity, sat on the board, and worked right next to them.

Reps and warranty insurance is most common on deals of about 15 to 20 million dollars and up, where the minimum premium on a larger deal may run 150,000 to 200,000 dollars, plus added legal costs. It is moving down into the lower middle market, though on smaller deals buyers often rely on a set-off against a seller note instead.

A few other trends are worth knowing. Banks and the SBA increasingly require life insurance, and some mezzanine lenders like to see it on bigger deals. Personal guarantee insurance is brand new in the US. Providers may cover around half of a guarantee and sometimes up to 75 percent, after underwriting, and it is not available in every state. We get asked about it often because a personal guarantee causes real stress, and we help clients connect with the right providers.

Where insurance pricing is headed

Insurance is a market, and pricing is cyclical. It is driven by events like hurricanes and fires, and by how much capital is in the commercial insurance sector. We were in a hard market with significant rate increases for a long time. Recently, commercial pricing has flattened, and some clients are even seeing savings for the first time in years. That does not mean a business you buy will get cheaper. A business with good claims and loss control has a case for flat or lower pricing, while one with a lot of claims will have a harder time.

Employee benefits are a different story. Health insurance drives most of the premium, and costs are climbing faster than commercial lines. At Oberle, we are going through our own renewal and are looking at about a 15 percent increase.

That brings me to the one thing I would leave every buyer with. If we do our job well, along with your other diligence partners, you will know what your first-year P&L really looks like before you close.

"Be conservative on your first year P&L. It always seems like things are a little bit more expensive."

August Felker

Know your insurance costs going in, so you can stop worrying about them and focus on running the business.