Reps and warranties insurance is bought in the middle of a deal and argued about at the start of one. For a seller its practical effect is on three numbers: how much of the price is held back, for how long, and what happens if a buyer finds something afterwards.
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Raise it in the letter of intent
Once exclusivity is granted your leverage falls, so the place to agree that a policy will be used and who pays for it is the letter of intent. Left to the purchase agreement stage it becomes a concession you are asking for rather than a term already settled, and the escrow reduction that makes it worth having is much harder to win.
What the policy costs and who bears it
A premium expressed as a share of the cover bought, plus underwriting fees and a retention the buyer absorbs before claiming. Market practice on who pays varies and is genuinely negotiable; splitting the premium and the retention is common. Whoever writes the cheque, it is a deal cost and it is priced into what you receive.
How it changes diligence
Underwriters read the diligence file, so a buyer using a policy will run a more formal process, not a lighter one. Sellers sometimes expect insurance to reduce the questions. It does the opposite, and it front loads the work, which is another reason to have the file in order before going to market.
What is left with you
The retention below the policy, anything excluded because it was known and disclosed, and fraud. Sellers should read the exclusions with their lawyer rather than assuming the policy is a clean break. Where the exclusions are wide, a small escrow may still be needed and the benefit shrinks.
Questions people ask about reps and warranties insurance
Does insurance let me skip the disclosure schedules?
No. The schedules define what is covered and what is excluded, so they matter more with a policy than without one.
Who claims on the policy?
The buyer, in the standard buy side structure. That is why a buyer will often be relaxed about a smaller escrow: their remedy is the insurer rather than you.
Is it available on a deal under a few million dollars?
Rarely on the standard terms, because minimum premiums make it uneconomic and underwriters need a formal diligence file. Smaller deals stay with negotiated escrows.