Indemnity Survival Cost Calculator

Long indemnity survival periods tie up seller capital through extended exposure.

Indemnity cap

Survival years

Claim probability %

Cost of capital %

PV expected exposure

$2,775,000

Expected claim amount

$900,000

Opportunity cost

$1,875,000

How the math works

Expected claim = cap × probability. Opportunity = cap × COC × (years/2). Total = sum.

$7.5M × 12% = $900k expected + $7.5M × 10% × 2.5 = $1.875M carry = $2.775M total PV exposure.

How to Use

Enter indemnity cap amount.
Enter survival period years.
Enter claim probability %.
Enter cost of capital %.
Read PV indemnity exposure.

Frequently Asked Questions

What's an indemnity survival period?

Length of time seller remains liable for specific types of claims post-close. Typical structure: general reps survive 12-18 months. Tax reps: statute of limitations + 60 days (usually 3-5 years). Title / ownership reps: indefinite (or 6-10 years). Environmental: 5-10 years. Fundamental reps: often no survival (indefinite). Each survival period creates ongoing seller exposure.

Why do periods matter economically?

Seller cannot 'close the books' on the deal until survival periods end. Capital held in escrow or personally-guaranteed has opportunity cost at seller's cost of capital. Longer survival = higher opportunity cost. On $5M indemnity cap with 5-year survival at 10% cost of capital, ~$250k/yr opportunity cost = $1.25M total. Sellers negotiate shorter periods; buyers fight for longer.

How do sellers fund indemnity?

Seller balance sheet (liquidity retained). Escrow account (usually 0.5-3% of deal held). R&W insurance (shifts exposure to carrier). Third-party guarantee (rare). Personal guarantee from seller (rare for large deals). Institutional sellers prefer R&W because it eliminates balance sheet drag. Mid-market sellers often accept cash escrow because it's simpler. Amateur sellers sometimes accept personal guarantee without realizing duration of exposure.

Claim probability modeling?

Historical data from similar deals in same asset class. 25-40% of private deals have some claim filed within survival period. 5-15% have claims above basket. 1-5% approach or exceed cap. Environmental claims highest frequency (8-15% of deals). Title most severe. Tax most dollar-concentrated. Sophisticated sellers model expected claim exposure and compare to deal economics. Each 100 bps probability reduction via clean diligence = 5-10 bps of effective deal value.