Cyber Insurance: Protect Your Business From Online Threats and Liability Claims

Most businesses need cyber insurance to protect themselves against significant financial losses due to cyberattacks. Cyber insurance for businesses can include first-party coverage for your company’s own expenses and third-party liability coverage for expenses incurred by other entities for which your business is held liable.

Read on to learn more about cyber insurance, such as the kinds of costs it can cover and how much you can expect to pay for this type of commercial insurance.

On This Page

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  What Is Cyber Insurance?

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  How Does Cyber Insurance Work?

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  What Does Cyber Insurance Cover?

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  What Types of Businesses Need Cyber Insurance?

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  How Much Does Cyber Insurance Cost?

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  How To Get Cyber Insurance for My Business

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  FAQs

What Is Cyber Insurance?

Cyber insurance is a type of commercial insurance policy that covers expenses that may arise if your business is the victim of a data breach or other cybercrime.

This coverage type is important given the high risk of a cyberattack, especially as commerce becomes increasingly digital.

For example, a 2025 survey conducted by Travelers found that 39% of businesses had experienced a cybersecurity breach. Additionally, 56% of business leaders were concerned about the threat of security breaches and hackers, making it the top cyber concern among those surveyed.^[1]

What Is Cyber Liability Insurance?

Cyber liability insurance protects businesses when a cyberattack causes financial harm to customers, clients or other third parties. This differs from first-party cyber coverage, which directly covers your company’s expenses in the event of a cybercrime.^[2]

Depending on your insurance company, third-party cyber liability coverage may be automatically included when you purchase a cyber insurance policy. Alternatively, some insurance carriers may sell data breach insurance and more comprehensive cyber liability insurance as separate policies.^[2]

How Does Cyber Insurance Work?

How your insurance provider pays out a cyber insurance claim may depend on the details of your policy. Many cyber insurance policies follow a reimbursement model, meaning you must initially cover your own costs out of pocket after a cybercrime, and then file a claim so you can be reimbursed later. However, policies with a “pay on behalf of” clause allow you to receive money up front in the event of a cybercrime, which you can then use to cover expenses related to your claim.^[3]

Is Cyber Insurance Required?

Your business is not required by law to maintain cyber insurance. Nevertheless, as business operations increasingly rely on computers and online data storage systems, cyber insurance is highly recommended for businesses with any digital footprint to protect against major financial losses in the event of cybercrime.

What Does Cyber Insurance Cover?

If your company is hacked and sensitive business data is stolen, a standard cyber insurance policy will often cover services and expenses like the following:^[4]

• Legal counsel
• Customer notification and call center services
• Crisis management and public relations
• Forensic investigations
• Payments to consumers to help them recover from the breach
• Losses involving defamation and copyright or trademark infringement
• Recovery or replacement of lost data
• Lost income due to business interruption
• Ransoms paid to extortionists
• Regulatory fines
• Expenses related to lawsuits, including court costs, settlements and judgments
• Accounting costs

Additionally, some cyber insurance companies offer extra coverages, such as reimbursement for fraudulent funds transfers, credit monitoring services for affected consumers and replacement of disabled computers.^[5]

Your cyber insurance policy may also cover your first-party losses after another business experiences a cyberattack, meaning your expenses would be covered even if the target of the hack does not have cyber insurance.^[5]

In some cases, a cyber insurance company may even cover bodily injury, property damage and pollution liability claims if they can be directly linked to a cybercrime. For example, a hospital’s cyber insurance policy could cover further medical treatments for a patient who experiences complications after their surgery is postponed due to a cyberattack targeting the hospital.^[5]

What Isn’t Covered by Cyber Insurance?

Cyber insurance policies often exclude coverage for decreases in a company’s valuation following a cybercrime, errors and omissions in the provision of technical services and business interruption expenses lasting more than 180 days. Additionally, your cyber insurer likely won’t cover employment-related issues, like discrimination, or other claims involving your directors and officers.^[5]

Keep in mind that your cyber insurance policy also won’t cover damage to your computers from non-hacking perils such as power surges and changes in temperature or humidity. However, your insurance company may cover the cost of repairing or replacing your hardware under these circumstances if you purchase electronic data processing insurance.

Do I Need Additional Coverage in the Event of a Cyberattack?

Cyber insurance is the primary coverage for businesses that have experienced cyberattacks, but you should make sure you understand your policy's details and that it fits your coverage needs. For example, if your current policy only covers first-party losses from cybercrimes, you may want to upgrade your policy or purchase a separate policy to also cover third-party liability claims.

What Types of Businesses Need Cyber Insurance?

Some industries handle large amounts of personal and financial data and may be more vulnerable to the costs of cyber threats than others. However, any business that uses technology — that is, virtually every business — could benefit from cyber insurance to protect against losses resulting from breaches of company and customer data. Some of these industries include:^[1][6][7]

• Finance and banking
• E-commerce
• Technology
• Construction
• Healthcare
• Manufacturing
• Nonprofits
• Professional services
• Retail
• Education

How Much Does Cyber Insurance Cost?

The median cost of commercial cyber insurance is about $2,000 per year. However, premiums can vary based on factors such as your company’s size, industry, amount of sensitive data, annual revenue, cybersecurity measures, insurance policy details and claims history, often ranging from $1,200 to $7,000 annually.^[6]

How To Get Cyber Insurance for My Business

It can be helpful to compare quotes from three to five different business insurance companies before you pick a cyber insurance policy, since each insurer has its own unique underwriting methods, which can lead to different rates for the same coverage. That said, it can certainly be a hassle to contact several carriers individually to submit your information.

Fortunately, comparison shopping is easy when you go through SmartFinancial. Simply answer a brief questionnaire, and we’ll connect you with a licensed insurance agent who can help you find the right coverage for your business. Click here for free quotes on commercial insurance!