You would typically fill in a "Foreign Shipper's Declaration of US Goods returned form" - something along the lines of this - http://images.fedex.com/downloads/jp/contact/cf3311.pdf
When I returned goods, I attached it to the package itself and sent a copy via email to the manufacturer. In the description, specify the goods and underneath that, the statement "returning for repair" and "9801.00.1055" (this is the HTS code for U.s. Goods Provided For In Chapter 85, Others, Returning, Without Having Been Advanced In Value Or Improved In Condition By Any Process).
I also tend to put my phone number on as the sender and the destination address and phone number (which should be on the package anyway).
I've done this plenty of times. Went through no problem, no customs problems. On return to the UK, the manufacturer should be clued up enough to do the same for bringing it back into the UK. As stated above, the only chargeables will be components, postage and bench time and not the cost of the unit itself.
With regards to insurance - cover it at it's full cost.
Hope this helps.