Is Rep & Warranty insurance worth it?
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Please help me understand the value in purchasing Rep and Warranty insurance. I see the value for Sellers, and can understand the potential appeal to buyers when acquiring companies from PE firms. But in my experience, policies are tremendously expensive and difficult to collect on. Additionally, R&W insurance only covers items that are properly due diligenced and will exclude any identified risks. Wouldn’t it make more sense for R&W Insurance companies to assess the identified risks and insure against the possibility of loss incurring from those risks? Then I might see the appeal.
If the seller has limited financial resources or is a distressed entity, you may be less confident in their ability to honor indemnity claims if something goes wrong after the deal closes. R&W insurance provides an additional layer of protection in such cases.
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