Reps and Warranties Insurance: Cost, Who Pays, How It Works

What reps and warranties insurance covers and excludes

RWI pays the insured, usually the buyer, for losses from breaches of the seller’s representations and warranties that nobody knew about at signing. Seller-side policies exist but are less common. The limit, retention, terms and policy wording are all negotiated deal by deal (Gallagher, 2026).

A typical buy-side policy covers:

• Unknown breaches of the general and fundamental reps in the purchase agreement
• Pre-closing tax indemnity, usually added as an enhancement
• A materiality scrape, if the underwriter is comfortable with the seller’s disclosure
• Defense and investigation costs tied to third-party claims

It typically excludes:

• Anything the buyer’s deal team knew before signing
• Matters listed in the disclosure schedules
• Covenants, projections, forward-looking statements and purchase price adjustments
• Standard carve-outs such as asbestos, PCBs and the availability of net operating losses
• Deal-specific exclusions raised during underwriting

Coverage and exclusion lists above are drawn from Gallagher’s 2026 RWI overview and its financial institutions guide.

The buyer-knowledge exclusion is the one practitioners feel most. If diligence surfaces an issue, the policy won’t cover it, so the issue has to be priced, fixed before close, or handled with a special indemnity. Importantly, that means the quality of your diligence sets the scope of your coverage.

Claims are common. Gallagher reports claim notices on around 20% of policies, most often tied to financial statements, material customers, tax and compliance with laws. Lockton found that about 36% of its resolved claims paid out above the retention (Lockton, January 2026).

How much does reps and warranties insurance cost?

In 2026, US buy-side RWI premiums run around or slightly above 3% of the limit purchased. Most buyers buy a limit of about 10% of enterprise value, mirroring a traditional escrow. The full cost has four parts: premium, retention, a one-time underwriting fee, and taxes and broker fees.

Here is the math on a $200 million deal with a $20 million limit: a 3% rate on line is a $600,000 premium. At a 0.5% initial retention, the buyer absorbs the first $1 million of loss, which drops to $600,000 to $800,000 after the first year. Add an underwriting fee of up to $50,000, plus taxes.

Pricing still varies by deal. Gallagher notes faster rate increases in harder sectors such as healthcare, where some carriers have narrowed their appetite after claims. Lockton also reports a widening gap between carriers that compete on price and those that compete on claims handling.

Who pays for reps and warranties insurance?

The buyer, in most deals. In a Woodruff Sawyer dataset of midmarket US deals from $27 million to $2 billion, buyers paid the premium 83% of the time in 2025, up from 45% in 2018 (Gallagher, April 2026). Sellers still paid in about 17% of deals.

Three forces moved the premium to the buyer. Premiums fell between 2018 and 2021, so the cost became easier to absorb. Competitive auctions rewarded bidders who offered clean terms, and private equity sellers came to expect a clean exit with little post-closing liability.

The retention is more negotiable. In the same dataset, average retention fell from as high as 2.77% of enterprise value on smaller deals to around 0.5%, and buyers bore the retention in 61% of 2025 deals. The pattern is simple: the smaller the retention relative to deal value, the more likely the buyer takes it on.

However, data sets the anchor, and leverage sets the outcome. A strategic buyer chasing a must-win target will often absorb both premium and retention to shorten the negotiation. In a thin process with few bidders, sellers may accept a share of either.

Three practical moves for the buy side:

• Decide your position on premium and retention before the LOI, since both shape how your bid reads against others.
• Model RWI as a transaction cost, the same as legal and QoE fees, so it does not surprise the deal model late.
• If you need seller skin in the game, ask for a small escrow covering part of the retention instead of a broad indemnity.

How RWI changes escrow, indemnity caps and survival periods

RWI moves the buyer’s main recourse from the seller to the insurer. In an uninsured deal, sellers traditionally set aside up to 10% of deal value in escrow, sometimes for years, to back their indemnity (Gallagher, 2025). With RWI, that escrow shrinks or disappears.

No seller indemnity is now the norm. About 65% of Lockton’s 2024 and 2025 placements used a public-style structure, where the policy is the buyer’s sole recourse for breaches of general reps, with fraud carved out (Lockton, January 2026). Lockton also reports no meaningful price difference between those deals and deals with a limited seller indemnity.

Policy periods in the table come from Gallagher’s 2026 overview. Seller-side survival periods and caps vary widely by deal and need counsel’s input.

The longer policy window matters because claims arrive late. Aon found that 51% of North American claims were filed more than 12 months after closing (Aon, June 2026). An escrow that releases at month 12 would not have backed about half of them.

The underwriting process and timeline

Plan on about four weeks from first broker call to a bound policy at signing. Underwriting itself takes 7 to 14 days once the insurer has your diligence materials, and it can move faster when the deal demands it (Gallagher, 2025).

1. Engage a broker around LOI, about four weeks before signing. Earlier helps if you need insurance or human capital diligence.
2. Collect indications. Insurers review the target’s financials, operations and draft purchase agreement, then quote premium, retention and proposed exclusions.
3. Select a carrier and pay the underwriting fee. The fee is non-refundable, so it is spent even if the deal dies.
4. Underwrite, about two weeks before signing. The carrier reviews your diligence reports, data room and draft disclosure schedules, then holds an underwriting call with your deal team and advisors.
5. Negotiate the policy, about one week before signing. The broker pushes back on deal-specific exclusions and answers follow-up diligence requests.
6. Bind at signing and satisfy conditions at close. Expect to deliver the premium, the data room and the closing set.

Steps and timing follow Gallagher’s financial institutions guide; timelines vary by carrier and deal.

Treat the underwriting call as a test of your diligence. Thin scope on a material area usually becomes a deal-specific exclusion. Clean, complete diligence reports and an organized data room are the fastest way to a broad policy.

Reps and warranties insurance FAQ

What is reps and warranties insurance?

Reps and warranties insurance is a policy that pays an acquirer for losses caused by unknown breaches of the seller’s representations and warranties in a purchase agreement. It replaces or reduces the seller’s indemnity and escrow, and it is usually bought by the buyer and bound at signing.

How much does rep and warranty insurance cost?

In 2026, US premiums run around or slightly above 3% of the limit purchased, according to Gallagher, and most buyers buy a limit near 10% of enterprise value. Add a non-refundable underwriting fee of about $35,000 to $50,000, surplus lines taxes, and a retention of roughly 0.45% to 0.60% of enterprise value (Lockton, January 2026).

Who pays for reps and warranties insurance?

The buyer pays the premium in most deals. In Woodruff Sawyer data on midmarket US deals, buyers paid it 83% of the time in 2025, up from 45% in 2018. Who bears the retention is more negotiable and depends on deal size and leverage.

How long do reps and warranties last?

Under a typical RWI policy, coverage lasts three years for general reps and six years for fundamental and tax reps, and many insurers extend fundamental reps to seven years at no added charge (Gallagher, 2026). Seller survival periods are negotiated separately in the purchase agreement.

Does RWI replace the escrow?

Often, yes. About 65% of Lockton’s 2024 and 2025 placements used a no-seller-indemnity structure, where the policy is the buyer’s sole recourse for general reps, except fraud. Some deals keep a small escrow sized to part of the retention.

Give the underwriter diligence it can trust

Your RWI coverage tracks the quality of your diligence. Underwriters read your diligence reports, data room and disclosure schedules, and every gap they find can become an exclusion. That puts a premium on running diligence in one place, with requests, findings and documents that hold together.

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