Representations and Warranties (R&W) Insurance
Representations and warranties (R&W) insurance is a transactional policy, most often bought by the buyer in an M&A deal, that pays covered losses from breaches of the seller's representations and warranties in the purchase agreement, subject to a retention, limit and exclusions.
Last updated October 13, 2026
How R&W insurance works
In an acquisition, the seller makes representations and warranties about the business, such as its financial statements, contracts and compliance. If one turns out to be untrue, the buyer would ordinarily seek recovery from the seller, often through an escrow or holdback. R&W insurance offers an alternative or supplement: the buyer's insurer pays covered losses instead, and the seller's post-closing exposure may be reduced.
Buy-side policies are the most common. Sell-side policies also exist and backstop the seller's indemnity obligation. A buy-side policy typically has a limit of roughly 5% to 20% of deal value and a retention, the buyer's initial share of loss, that has often been around 0.5% to 1% of enterprise value in recent deals, though terms move with the market.
The process runs during the deal. The buyer and its advisers give the insurer the purchase agreement and diligence reports, underwriters review and ask questions, and the policy is bound around signing.
Example
A hypothetical company buys a start-up. After closing, the buyer learns that the start-up did not have the rights to a software component, contrary to a representation in the agreement. The buyer submits a claim. If the breach was unknown to the deal team before closing and is not excluded, the policy may respond above the retention and up to the limit.
What to watch for
- Known matters: breaches known before the deal, including those disclosed in schedules, are generally excluded.
- Standard exclusions: covenant breaches, purchase price adjustments, and items such as pension underfunding and certain tax matters commonly appear, and deal-specific exclusions may be added for areas the insurer feels were not sufficiently investigated.
- Interim breaches: new breaches arising between signing and closing are often carved out.
- Diligence drives coverage: thin diligence can lead to broader exclusions.
- Cost: underwriting fees and premium are additional costs, so the trade-offs should be weighed against the negotiated indemnity terms.
R&W insurance vs. related terms
- Seller indemnity and escrow. In a traditional deal the buyer recovers from the seller, often from an escrow or holdback. R&W insurance can replace or supplement that. The two are frequently combined, with a small seller indemnity covering the retention and the policy responding above it.
- D&O and tech E&O. E&O and D&O policies cover claims against the company or its leaders. R&W insurance covers the buyer's own loss when what the seller said about the business was untrue. They answer different questions, and a deal often involves several policies.
- Tax insurance. Tax insurance is aimed at a specific, identified tax position. R&W insurance addresses a broad set of representations. Some deals use both.
- Run-off cover. Run-off protects former directors and officers after a sale. It is purchased for the seller's side of the deal and is not a substitute for R&W insurance.
Second example: a known issue
A hypothetical buyer is acquiring a software company. During diligence, its advisers find an open dispute with a large customer over a contract. The underwriter's draft policy excludes losses arising from that dispute, because it is already known. The buyer negotiates a specific indemnity or a price adjustment with the seller for the dispute, and relies on the R&W policy for unknown breaches, such as a financial statement error that no one found. After closing, an accounting error surfaces. If it was not known to the deal team and is not otherwise excluded, the buyer may claim against the policy above the retention, and the insurer typically waives its right to pursue the seller except in cases of fraud, though the wording governs.
Questions to ask your broker or underwriter
- Is this a buy-side or a sell-side policy, and who bears the premium, the underwriting fee and the retention under the purchase agreement?
- How long does coverage last for general representations compared with fundamental and tax representations? Some policies run about three years for the first and longer for the second, but terms differ.
- Does the retention reduce after an initial period, and how does it interact with any seller indemnity or escrow?
- Which exclusions appear in the draft policy, and which are deal-specific?
- Does the policy read out materiality qualifiers when deciding whether there was a breach and how much the loss is?
- What diligence reports will the underwriter expect, and in which areas did thin diligence lead to narrower coverage?
- How do notice and claim procedures work after closing, and what are the time limits to report a breach?
Related terms that show up in the policy include the retention, the limit of liability, subrogation against the seller and the usual exclusions.
Why it matters for technology, AI, fintech and digital-asset companies
Venture-backed companies can appear on both sides of a deal, as the acquirer or as the target whose founders and investors want a clean exit. Insurers rely on diligence, and areas that were not thoroughly investigated can end up subject to specific exclusions, so topics like intellectual property, data privacy and security, and regulatory compliance deserve careful diligence. Founders selling may prefer a buy-side policy because it can limit their post-closing indemnity exposure. Related policies include D&O and Tech E&O.
Representations in technology deals often concern intellectual property ownership, open-source use, data rights for training sets, privacy compliance and cybersecurity. Insurers may narrow or exclude areas they consider hard to verify, so a target with unusual data practices or a novel product should expect close questions. Crypto and fintech targets face the same pattern with licensing and regulatory compliance. On smaller deals, the premium and fees can weigh against the benefit, so it is worth discussing whether a policy fits the size of the transaction. Acquirers that carry cyber programs should also compare what the target's own policies cover before and after closing. See AI and emerging tech for context on the sector.
See how this applies in practice: startup insurance by stage and D&O insurance for startups.
Related terms
Frequently asked questions
What is R&W insurance?
Representations and warranties (R&W) insurance is a transactional policy, most often bought by the buyer in an M&A deal, that pays covered losses from breaches of the seller's representations and warranties in the purchase agreement, subject to a retention, limit and exclusions.
Who buys R&W insurance, the buyer or the seller?
Most policies are buy-side, purchased by the acquirer so it can recover from the insurer instead of the seller. Sell-side policies also exist, backstopping the seller's indemnity obligations, but they are less common. Who pays the premium is negotiated in the purchase agreement.
What is not covered by R&W insurance?
Typically excluded are breaches known to the deal team before signing or closing, covenant breaches, purchase price adjustments, certain tax and pension matters, and interim breaches. Insurers may also add exclusions for areas that were not thoroughly diligenced. Exact exclusions vary by policy.
What is the retention on an R&W policy?
The retention is the amount of loss the buyer bears before the insurer pays, similar to a deductible. Recent deals have often used retentions of roughly 0.5% to 1% of enterprise value, sometimes dropping after a period. It varies by deal size and market conditions.
When is R&W insurance worth it?
It depends on the deal. It can help a buyer when the seller wants a clean exit, when a bid needs to stand out, or when the seller cannot back a large indemnity. Premium, underwriting fees and exclusions need to be weighed against those benefits with deal advisers.
Does R&W insurance cover fraud by the seller?
Policies generally respond to breaches of representations that were unknown to the deal team, and insurers commonly keep the right to pursue the seller in cases of fraud while giving up that right for other breaches. The exact wording varies, so check the subrogation language.
How long does an R&W policy last?
Terms differ, but policies often run longer for fundamental and tax representations than for general ones, and the period usually tracks the purchase agreement's survival terms. Confirm the periods and the reporting deadlines in the draft policy.
How long does it take to get an R&W policy?
The process runs alongside deal diligence. Timing depends on how quickly diligence reports, the purchase agreement and underwriter questions can be completed. Starting early lets the buyer compare terms and avoid delaying signing.
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