Cyber Liability Insurance for Small Business

In a world where cyberattacks are more common than ever, cyber insurance is a must for small businesses.

Cyber liability insurance is a specialty insurance coverage that protects your business' liability against technological risks like data breaches and cyberattacks.

Cyber crimes can not only take out your computer systems, but they can also tarnish your reputation, erode customers’ trust, endanger your customers and employees, and jeopardize the future of your entire business.

That's why it is important to understand your cyber risks and liabilities and get the insurance you need to help protect your business from cyber-related risks.

Recommended: Next Insurance is dedicated to matching small businesses with the right cyber liability policies at the best price.

What Is Cyber Liability Insurance?

Nearly every business, no matter how big or small, has some degree of cyber risk. And, with a cybercrime occurring in the US every 39 seconds, it may be more a matter of when a cyberattack targets your business.

Cyber liability insurance is a type of insurance that protects you from the cyber-related risks that:

Cyber liability insurance, also known as cyber liability insurance or cyber insurance, is a specialty insurance that protects businesses in the case of data breaches and cyberattacks by providing assistance and resources and covering the costs of remedying the cyberattack such as legal fees, notifying customers, credit monitoring, data recovery, crisis management, public relations, and penalties and fines.

Businesses that handle personal identifiable information (PII) or personal health information (PHI) are particularly susceptible to cyberattacks. Hackers often target companies that store this type of information, such as those in education, finance, IT, real estate, and retail.

However, considering how most businesses store customer lists, customer information, and even credit card information on their computer systems or online, the majority of businesses may be at risk of cyber liability.

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Do I Need Cyber Liability Insurance for My Small Business?

When it comes to cybercrimes, small businesses are not only at risk, but the effects can be devastating. In fact, more than 40% of small and medium businesses report experiencing cybercrime in the past year. And many businesses that experience a data breach or other cybercrime never recover.

Unfortunately, most general liability insurance policies and business owner’s policies do not cover data breaches and cybercrimes. For that, you will need cyber insurance.

If you handle or store any kind of PII or PHI, it is highly recommended that you have the appropriate cyber insurance.

Personal identifying information can include customers’:

  • Names, Addresses, Phone Numbers, Email Addresses
  • Social Security Numbers
  • Driver’s License Numbers
  • Credit Card Numbers
  • Bank Account Information
  • Medical Information
  • Educational Information

If your business handles any of these types of information, you may be particularly susceptible to a data breach or cyberattack.

In addition, certain industries are often targeted by hackers in data breaches and cybercrimes. These industries and sectors include:

  • Financial Services
  • Healthcare
  • IT Professionals
  • Real Estate
  • Retail

Again, if your business operates in any of these areas, experts highly recommend that you protect your business’s liability with a cyber insurance policy.

How Much Does Cyber Insurance Cost?

There is no one-size-fits-all policy for cyber insurance. The coverage and cost of cyber liability insurance will depend on several factors, including the type of cyber liability insurance you need and your unique business situation.

Some of the factors that will affect your cyber insurance costs include:

  • Your industry
  • Size of your business
  • Annual Revenue
  • Number of Employees
  • Type of Sensitive Information Stored
  • Amount of Customer Information Stored
  • Security Measures in Place
  • Deductibles and Coverage Limits

Both the amount and cost of cyber liability insurance coverage that is necessary for your small business will be determined in large part by all of these factors.

What Is Covered by Cyber Insurance?

Cyber insurance covers many of the costs associated with hacks, data breaches, and other types of cyberattacks. 

While cyber insurance coverage will depend on the specifics of your policy, some of the costs associated with a data breach or cyberattack that cyber insurance may cover include:

  • Investigating the Cyberattack
  • Recovering Important Data
  • Paying Cyber Ransom Payments 
  • Notifying Customers of a Data Breach
  • Providing Credit Monitoring Services
  • Paying for Attorney Fees
  • Paying Settlements or Court Ordered Judgments
  • Business Interruption Expenses

Many insurance companies separate cyber insurance into coverage against two distinct kinds of threats- coverage against data breaches and coverage against cyberattacks. It is important to understand each in order to ensure that your business has the protection that it needs.

Data Breach Insurance

Data breach insurance helps protect your business’s liability when they experience a data breach and customers’ or employees’ PII or PHI is lost or stolen.

Data breach insurance helps businesses respond to a data breach and can help pay for the following:

  • Legal Expenses
  • Notifications to Affected Customers
  • Credit Monitoring Services
  • Public Relations
  • Extortion Negotiation and Payments
  • Lost Income and Business Interruption
  • Regulatory and Compliance Penalties and Fines

Cyber Liability Insurance

Cyber liability insurance helps protect your business’s liability against other cybersecurity threats and risks, such as a hacker shutting down your computers or locking your data and demanding a ransom.

Depending on the details of your policy, cyber liability insurance helps businesses respond to all manner of cybersecurity and cybercrimes by providing tools and resources and helping pay for:

  • Legal Expenses
  • Extortion Negotiation and Payments
  • Forensic Investigations
  • Repairing Damaged Systems 
  • Data Recovery
  • Crisis Management Expenses
  • Lost Income and Business Interruption
  • Regulatory and Compliance Penalties and Fines

What Is Not Covered by Cyber Insurance?

Cyber liability insurance policies are specific in what they will and will not cover. As we discussed, many insurance companies may offer several types of cyber liability insurance, such as data breach insurance and cyber liability insurance, or they may bundle these together for small businesses. Therefore, assessing your risks and liabilities is important in determining the right cyber insurance for your business.

Most cyber insurance policies include several exclusions. The types of claims that are usually not covered by cyber insurance include:

  • Errors and omissions
  • Loss of potential future profits
  • Value attributed to stolen intellectual property
  • Cost of improvements or upgrades after a data breach
  • Employee theft or fraudulent use of data
  • Intentional and dishonest actions by the company
  • Property damage (even if related to cybercrimes)
  • Bodily injury (even if related to cybercrimes)
  • Loss of data due to a hardware failure
  • Loss of data due to a utility failure

Some of these claims may be covered by other types of business insurance, such as general liability insurance, professional liability insurance, commercial property insurance, and business interruption insurance. Check out our article on business insurance for more on the types of insurance you may need for your business.

Cyber Insurance FAQ

Is cyber insurance included in general liability insurance?

In short, no. General liability insurance does not typically include cyber liability. General liability insurance protects you from liability for bodily harm and property damage caused by your goods, services, or operations. Although cyber liability insurance can be added to a general liability policy as an endorsement, it is not usually part of a general liability policy.

Is cyber insurance included in professional liability insurance?

The short answer is no. Your professional liability insurance may cover some instances and costs of a cyberattack. However, professional liability coverage is usually limited to the legal costs arising from an incident. 

For example, professional liability insurance is meant to protect a business from professional mistakes, negligence, copyright infringement, libel, and slander that could lead to a lawsuit. It usually won't cover the costs of notifying customers, providing credit and fraud monitoring services, launching a forensic audit, recovering data, or paying regulatory and compliance penalties and fines.

What does cyber insurance cover?

Cyber liability insurance protects your business from liability for data breaches and cybercrimes by covering costs like legal fees, sending notifications to affected customers, credit monitoring services, hiring a public relations firm, extortion negotiations and payments, forensic investigations, data recovery, lost income and business interruption, and regulatory and compliance penalties and fines.

Is cyber insurance mandatory?

No, cyber liability insurance is usually not mandatory. However, due to the extremely high risks and costs of a data breach or cyberattack, cyber insurance is a necessary protection for businesses, big and small. This is especially true if your business handles personal identifying information (PII) or personal health information (PHI) or participates in an industry that is often targeted for cyberattacks (financial services, healthcare, IT, real estate, and retail, in particular).

What are the types of cyber insurance?

The two main types of cyber liability insurance are data breach insurance and cyber liability insurance. Data breach insurance helps protect your business’s liability when they experience a data breach and customers’ or employees’ personal identifying information (PII) or personal health information (PHI) is lost or stolen. Cyber liability insurance helps protect your business’s liability against other cybersecurity threats and risks, such as a hacker shutting down your computers or locking your data.

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