LegalFinance
Representations and Warranties Insurance (RWI)
Also known as: RWI, R&W insurance, transactional insurance
An insurance policy that covers the buyer's losses from breaches of the seller's reps and warranties — shifting the risk from the seller to an insurance company.
WHY IT MATTERS
RWI lets the seller walk away cleaner. Instead of the buyer holding escrow for 18-24 months to cover potential claims, an insurance policy covers them. The seller pays a premium (usually 2-4% of the coverage limit) out of deal proceeds in exchange for lower escrow, shorter survival periods, and reduced personal exposure. RWI is now standard on most middle-market deals above $30-50M. It's meaningful leverage for the seller — but only if the seller has the time and advisors to negotiate it. A have-to-sell founder often doesn't get RWI because there's no time to set it up.