What Sellers Are Actually Insuring in 2026 Lower Middle-Market Deals

The seller's attorney opens the buyer's markup at page 47 and stops on the reps schedule. Twenty-three separate statements about the company sit on the page — tax filings, customer contracts, employee classifications, environmental history, cyber posture, AI use — each one a promise the seller is signing under.

A note in the margin from the buyer's counsel reads: "covered under RWI." That single line is doing more work in 2026 than most sellers realize.

Reps and warranties insurance used to be a large-cap tool. It has moved down-market fast, and the sellers signing those reps are being asked to stand behind a wider set of statements than they were two years ago.

Whether the deal will carry a policy is settled. What the seller is on the hook for once the policy binds is the live question.

The Reps Schedule Has Gotten Longer

Go back to that 47-page markup. A decade ago, the reps schedule on a mid-sized industrial services deal read like a checklist: organization, authority, financials, taxes, litigation, material contracts. In 2026, the same deal carries reps on data privacy, model governance for any AI tools the company uses, wage-and-hour classification, supply chain sanctions exposure, and ESG disclosures the buyer's lender is asking about.

Reps are statements of fact at closing and warranties are promises those facts are true. Each new rep the buyer adds is another factual assertion the seller has to defend, or disclose against, before signing. An RWI policy does not replace the operating coverage the company already carries, so sellers heading into a process are well served by pressure-testing their commercial insurance program a year before they go to market, not the week the LOI arrives.

What the Policy Covers, and What It Hands Back to the Seller

Buyers on a lower middle-market deal will typically bind a policy sized to a single-digit percentage of enterprise value, with a modest retention that steps down after the first policy year. Premiums in the current soft market sit well below where they ran at the 2022 peak, according to broker guides that track the market. On paper, the seller walks with more of the purchase price at close and a much smaller indemnity cap.

The catch sits outside the policy. Underwriters carve out categories they will not insure, and those carve-outs land back on the seller through the purchase agreement. The carve-outs worth naming up front:

• Known issues. Anything surfaced in diligence — the wage-and-hour audit, the pending customer dispute, the environmental notice — is excluded, and the buyer will ask for a specific indemnity to sit alongside the policy.
• Purchase-price adjustments. Working capital, net debt, and earn-out disputes are handled between the parties, not by the insurer.
• Covenants and forward-looking obligations. The policy covers the truth of statements at closing, not the seller's promises about what will happen after.
• Category exclusions. Underwriters routinely carve out unfunded pension liabilities, certain tax positions, PFAS and other emerging environmental exposures, and, more and more, AI-specific representations.

Read the Markup Before You Sign

Back to that page 47. A seller who understands what the RWI policy actually covers can push in three places that matter:

1. The exclusions schedule. Read every carve-out the underwriter has written into the binder, and match each one against the reps the buyer is asking you to give. Anything excluded by the policy that is also a rep is sitting on the seller.
2. The definition of loss and the materiality scrape. These two provisions decide how much of a covered claim actually gets paid, and buyers negotiate them hard because sellers rarely do.
3. The specific indemnities. Known issues surfaced in diligence are handled outside the policy. Push for tight caps, short survival periods, and a defined dollar basket rather than open-ended exposure.

None of this is separable from the rest of the insurance workstream. The same final week that reprices the R&W binder is where coverage-tower gaps and late D&O tail costs move the purchase price, and the seller's own runoff coverage needs to be priced and bound before closing rather than negotiated on closing day.

The policy does not replace diligence, and it does not replace the seller reading their own reps — it allocates risk between the parties. A prepared seller can use it. An unprepared one will hand value away without noticing.