The buyer wants us to pay for Reps and Warranties Insurance to cover transaction liabilities, which eats into our cash at close. How do we evaluate this cost-sharing and structure the deal limits?

Question

Tyler Smith · Accepted Answer

Reps and Warranties Insurance is a great tool to limit your post-close liability, but you should not bear the entire premium cost. It benefits both parties, so the cost of the policy is typically split fifty-fifty between buyer and seller as a transaction expense.

When negotiating the policy, ensure that the buyer's sole recourse for general representation breaches is the insurance policy itself, except in cases of fraud. This creates a clean exit for you, as your post-close indemnity exposure is capped at your share of the policy's retention amount, which is usually around one percent of the enterprise value.

To make this structure work, your due diligence materials must be highly organized. If your financial reporting, customer contracts, and employee records are easily auditable, the insurer can underwrite the policy quickly with fewer exclusions. Use your leadership team to prepare these materials as part of their quarterly Rocks. This preparation ensures you get a clean policy with minimal exclusions, allowing you to walk away with peace of mind and maximum cash at close.