The Clean Exit: How Sellers Are Taking Nearly Everything Home at Closing

Reps and warranties insurance has quietly become standard on mid-market deals, and it changes seller economics dramatically. The sellers who benefit are the ones who raise it early.

For most sellers, the purchase price and the amount of money that arrives at closing are two different numbers. The gap between them is usually the escrow: a slice of the price, held back for years, against the possibility that something the seller promised in the purchase agreement turns out to be wrong.

Reps and warranties insurance, usually shortened to RWI, exists to close that gap. It used to be a product for large deals. It is not anymore. RWI appeared on 46 percent of private-target deals in SRS Acquiom’s 2026 study, and on sponsor-backed mid-market deals it is close to standard.

The economics for sellers are hard to ignore. In deals without RWI, the median escrow runs around 11 percent of the deal value, with averages closer to 15 percent. In deals with RWI, the median escrow is under 3 percent. That difference is not a rounding error. On a twenty million dollar sale, it can mean roughly two million dollars arriving at closing instead of sitting in escrow for years.

What RWI actually does

In a traditional deal, the seller stands behind the representations and warranties in the purchase agreement personally. If the buyer later discovers a problem, an unpaid tax exposure, a misstated financial item, a contract that was not what it appeared to be, the buyer claims against the escrow, and sometimes against the seller directly, for years after closing.

With RWI, an insurer takes on most of that risk instead. The buyer’s primary recourse for a breached representation is the policy, not the seller. Escrows shrink. Survival periods shorten. In a meaningful share of insured deals, the seller’s representations do not survive closing at all.

The premium typically runs between 2.5 and 4 percent of the policy limit. It is often split between buyer and seller, and sometimes absorbed entirely by one side as a deal point. Against the escrow it releases, it is usually a straightforward trade.

Why timing matters more than anything else

RWI is not something that gets added to a deal at the end. It is part of the deal’s architecture, and it is negotiated at the letter of intent stage, when the parties are setting expectations about indemnification, escrow, and survival.

Deal teams now front-load RWI strategy: whether a policy will be used, the limits and retention, the likely exclusions, and who pays the premium are increasingly settled before the purchase agreement is drafted. A seller who first hears about RWI at the purchase agreement stage has usually already given up the leverage the product was supposed to create.

This is why it matters that the seller’s counsel raises it first, rather than waiting to see whether the buyer does.

Insurability is earned in diligence

An RWI policy is underwritten against the quality of the deal’s diligence. Underwriters review the diligence reports, and the representations causing them the largest losses are consistently the ones tied to the company’s records: financial statements, undisclosed liabilities, material customers and suppliers, material contracts, and compliance with law.

The practical consequence for sellers is familiar. A company with clean, organized records is easier to insure, on better terms, with fewer exclusions. A company with gaps gets a policy full of carve-outs, or a buyer who insists on a traditional escrow after all. Deal readiness and insurability are the same work.

What sellers should ask before going to market

• Is my deal a likely candidate for RWI, given its size and buyer profile?
• What would RWI plausibly release at closing, compared with a traditional escrow?
• Who raises it, and when? It belongs in the LOI conversation, not the purchase agreement.
• What would underwriters find in our records today, and what is worth cleaning up first?
• Which exposures would likely be excluded from coverage, and how do we handle those?
• These are manageable questions when addressed before a process starts. They are much harder to influence once an LOI is signed.

How CGL can help

CGL advises sellers on deal structure, including whether RWI fits the transaction and what it should change about the escrow and indemnity package. We are most useful before the letter of intent, when these terms are still open.

If you are considering a sale in the next year, a short call is enough to tell you whether RWI is realistic for your deal size and what it would likely free up at closing.