Representations and Warranties Insurance (RWI)

Representations and Warranties Insurance (RWI) provides coverage for losses arising from breaches of the seller's representations and warranties in a purchase agreement.

How RWI Works

Seller makes representations (statements of fact)
↓
Buyer discovers breach post-closing
↓
RWI policy covers buyer's losses
↓
Seller has limited or no indemnification exposure

RWI Coverage Details

Premium: 2-4% of coverage limit Coverage: Typically 10-20% of deal value Retention: 0.5-1% of deal value (buyer's deductible) Policy Term: 3-6 years depending on rep type

Benefits of RWI

For Buyers:

• More protection than seller indemnification
• Insurer has resources to pay claims
• Preserves seller relationship
• Simplifies negotiations

For Sellers:

• Cleaner exit (limited ongoing liability)
• Higher proceeds (smaller escrow)
• Competitive advantage (easier for buyer)

When RWI Makes Sense

• Deal size >$20M (cost-effective)
• Seller with limited indemnification capacity
• Competitive auction situations
• Private equity exits (clean break)

For smaller SMB deals, RWI is typically too expensive relative to deal size.