Reps & warranties insurance (RWI)

Definition

A policy that pays a buyer for a breach instead of the seller paying.

Why It Matters

It is uncommon at the smallest deals and more common as size climbs. The policy can shrink the escrow holdback and speed a close. But a premium and a retention both cost real money, so it earns its place mainly when the seller's covenant is thin or the seller is leaving entirely.

In numbers: A policy written at 10% of a $5M price covers $500,000 of claims, and the recovery runs against the insurer rather than against a seller who has already spent the proceeds.