Every answer and its explanation appears here once you have finished the path. Each one then links to the matching glossary entry, where the concept is set out in full with its worked example.
1. What is the real cost of an escrow to the seller?
Time and a deferred distribution: the escrow ties up its cash, it is not a spending line
The answer seeing nothing until a claim is brought is the one an accounting reading produces, and it explains why the subject is so often handled late: the cost appears in no expense line, it appears in a schedule of funds and in a distribution that does not happen. That is where the seller's interest in insurance comes from, and why the product grew with private equity rather than elsewhere. The yield calculation another answer proposes measures a small part of the cost and misses the essential one, which is time.
Glossary entry →2. In what sense is the insurance described as a balance sheet effect before being a risk transfer?
Because it substitutes an insurer's undertaking for the seller's tied-up cash, which is why the interest often comes from the seller
Insurance does not first make a risk disappear, it makes a tied-up sum disappear: that is why the seller is often the first interested party while the policy almost always ends up bought by the buyer, and that apparent contradiction is the heart of the module. The other answers look for the effect in the target's or the buyer's accounts, when it occurs at the seller's, on the availability of its sale proceeds.
Glossary entry →3. The buyer moves from an escrow to a policy. What exactly does it exchange?
A certain and immediate fund for a conditional claim: better in size, worse in certainty and in timing
The three terms of the exchange count together, and presenting the move as pure gain is what sales presentations do: a policy limit almost always exceeds an escrow, but an escrow is drawn down while a policy is claimed on, worked up and argued. The answer speaking of equivalent terms erases precisely that gap in certainty and timing. The one mentioning unlimited cover describes a product that does not exist, every policy carrying a limit and a retention.
Glossary entry →4. The agreement caps the seller's liability at one euro and no retention is provided. What does that mean for the buyer?
That it self-insures the first slice of every breach, the policy's retention being covered by nobody, and it is rarely presented that way
A retention exists in every policy, and if the sale agreement puts it on nobody, it stays with the buyer: the structure presents itself as full protection and leaves a retained loss on every claim. The practical point follows immediately, and it is the next question's: that retained loss does not weigh the same depending on the kind of breaches the target will produce. The answer imagining a reinstatement invents a mechanism which, where it exists, applies to the limit and never to the retention.
Glossary entry →5. Which question replaces the one about which protection is larger?
What losses this target will produce: small breaches stay under de minimis or within retention
A twenty million limit above a one million retention is worth next to nothing on a target whose breaches run in the hundreds of thousands, which stay under the de minimis or wear down the retention, and a smaller escrow would answer better: comparing sizes is therefore the wrong comparison, and it is the one everyone makes. The other answers name real criteria, price, timing, duration, which separate two protections once you know which will respond; this one decides first whether either will.
Glossary entry →