Is cyber insurance worth it? Pros and cons

What is cyber insurance?

Cyber insurance, also known as cyber liability insurance or cybersecurity insurance, is a service that offers businesses protection if they ever experience a cyberattack or a data breach. As a business product, cyber insurance gives access to services that help restore partial or full function, reclaim stolen funds, and cover legal proceedings. Investing in cyber insurance benefits companies of all sizes that operate online to any extent, whether through online retail storefronts or internal employee management systems.

Cyber insurance for businesses can fall under first-party or third-party coverage. First-party coverage applies to the losses the company experiences during a cyber incident, whereas third-party coverage is used for the liability costs the company must pay to third parties. Terms of cyber insurance policies can also include credit monitoring services and assistance with cyber extortion.

Benefits of cyber insurance: Why it’s worth it

Getting cyber insurance offers organizations benefits ranging from financial protection to legal support. Although it doesn’t replace a comprehensive cybersecurity ecosystem, it can help boost the company’s readiness to respond to and resolve cyber incidents.

Financial protection against losses

Data incidents targeting businesses tend to be costly. According to Verizon’s 2025 Data Breach Investigations Report, the median amount paid to ransomware groups was $115,000. For smaller organizations, this can be a detrimental loss. Cyber insurance can be invaluable in protecting businesses from facing major financial losses caused by cyberattacks.

The primary purpose of cyber insurance is to help handle financial losses associated with online attacks, which extends beyond recovery of losses because services required to handle the aftermath of a cyber incident can be a significant expense. Cyber insurance can partly or wholly cover costs associated with the incident investigation, legal fees, and the response process.

Some insurance terms may also include assistance with ransom payments or fines. In most cases, cyber insurance terms will include the costs of credit monitoring and identity theft recovery services for affected persons.

Access to expert incident response teams

Cyber incidents require a quick response from the affected organization. Usually, companies set a business continuity plan (BCP) in place to cover the steps from the recorded incident to its full resolution.

Having cyber insurance in place grants organizations access to resources that help resolve incidents faster. Depending on the chosen insurance policy, they may have 24/7 access to cybersecurity experts specializing in corporate cybercrime who can promptly assist their clients.

Cyber insurance can also include legal support, which can be particularly useful for smaller companies that may not have as many legal resources at hand. Hiring additional aid can be costly, so having support built in as an insurance clause helps reduce post-incident expenses and can be worth as much as the financial payout.

Faster business recovery and reduced downtime

Even a relatively small cyberattack can cause lasting damage to a company’s infrastructure. Compromised or corrupted data, stolen corporate credentials, or DDoS attacks can all significantly disrupt operations both on the company’s and its clients’ ends.

Having cyber insurance in place helps organizations respond to incidents more quickly thanks to dedicated professional support. The insurer can help develop a comprehensive business continuity plan, ensuring that the company efficiently responds to an incident as it occurs and afterward.

Legal and regulatory compliance support

Cybersecurity compliance is a must for practically any business running operations online. It helps organizations prove that they take their customers’ trust seriously and handle their data appropriately. However, falling victim to a cyber incident can pull companies back, especially if the breach occurs due to a lack of compliance.

Having cyber insurance in place provides organizations with support for legal defense. This includes access to legal advice when navigating industry regulations like HIPAA or PCI-DSS and may also extend to legal representation and coverage of defense expenses.

Reputation management and crisis communications

As unpleasant as it may seem, planning crisis communications ahead of a potential incident is a crucial part of a cybersecurity strategy. Knowing how your organization would respond to a data breach, a DDoS attack, or a ransomware threat can help you react efficiently if the worst-case scenario comes true.

Some cyber insurance policies can include a clause regarding PR services. If an organization experiences a cyber incident, it can use these services to handle public communication and help manage reputational damage it may incur. These usually include press releases and communications shared with affected clients.

Drawbacks of cyber insurance: Potential concerns

Although cyber insurance is a valuable preventative measure for companies to invest in, it’s not a one-size-fits-all solution. It can be financially restrictive for smaller organizations, and fully trusting the policy while putting other security measures on the back burner doesn’t prevent companies from facing liability.

Coverage limitations and exclusions

Cyber insurance is a contract between the insurance provider and the business, which means both sides must adhere to certain requirements for the agreement to function. Usually, insurance agreements have exclusion terms built in for scenarios where coverage may not be applicable. These can include pre-existing vulnerabilities, known inadequacies in the company’s cybersecurity infrastructure, or force majeure conditions.

High costs

Cyber insurance for organizations tends to be expensive. The bigger a business is, the higher its security demands are. They often need extensive coverage for malicious incidents, covering every corner of the organizational infrastructure. Over time, these costs can progressively increase as organizations grow and their demands expand. In some cases, businesses can face price hikes upon insurance renewal and might need to change the terms to include fewer coverage benefits.

Stringent requirements to qualify

An organization can’t always buy cyber insurance as easily as it might purchase software. The company’s cybersecurity positioning before it adopts insurance is important, and it must prove that it already adheres to sufficient security standards.

An organization should support multi-factor authentication (MFA) for company-owned accounts, maintain regular backups of sensitive internal data, provide employees with routine cybersecurity training, and have an existing reliable infrastructure. Failure to adhere to these standards can leave the organization liable in the event of a cyberattack, even if it has coverage in place.

False sense of security

Cyber insurance is a complementary security aspect. It’s not the end-all, be-all solution that can replace robust cybersecurity practices or an unbreakable barrier against cyber threats. Organizations that invest in cyber insurance are nonetheless responsible for instilling and maintaining correct cybersecurity practices in their infrastructure. Failure to do so can even hold the company liable for damages sustained during a cyber incident, and the insurance provider may refuse to pay out on the grounds of breaching the agreement.

What does cyber insurance typically cover?

Each cyber insurance agreement has its own nuances based on the organization’s needs. However, both first-party and third-party coverage tend to include some standard benefits.

First-party coverage typically includes:

• Data breach response costs. Expenses related to the aftermath of a data breach, according to the business continuity plan.
• Business interruption losses. Damages sustained due to outage or interruptions caused by a data breach.
• Cyber extortion or ransomware. Partial or full coverage for ransomware payments.
• Data restoration. Expenses and other resources required to recover stolen or corrupted data.
• Crisis management. Resources for post-incident communications and response.
• Forensic investigation. Financial aid and professional help required to conduct a full investigation into the cyber incident.

Standard third-party coverage includes:

• Legal liability claims. Legal advice and coverage for defense expenses.
• Regulatory defense costs. Coverage for expenses related to regulatory breaches.
• Media liability. Assistance with public relations and media communications.
• Network security liability. Resources required to recover compromised systems.

What doesn’t cyber insurance usually cover?

Although companies can negotiate special terms for some insurance contracts, certain events and incidents are typically excluded from cyber insurance altogether.

• Pre-existing incidents or known vulnerabilities. Cyber insurance policies usually don’t cover pre-existing incidents that the company is aware of. The company is held fully liable for vulnerabilities it’s already aware of. In some instances, a company may not even be able to get cyber insurance until the existing conditions are resolved.
• System upgrades or improvements. Keeping cybersecurity systems up to date is a proactive measure against cyberattacks, and therefore doesn’t fall under reactive insurance policies.
• Loss of future income or revenue. If the company suffers a loss of revenue in the future but can’t sufficiently prove it’s due to a past cyberattack, the losses aren’t considered insured.
• Intellectual property theft. In many cases, intellectual property theft is not covered by cyber insurance and requires different protections.
• Reputational harm beyond the immediate crisis. Any reputational harm that the organization experiences must be proven to have been caused by a cyber incident for the coverage to apply because policies don’t cover secondary or tertiary effects.
• Social engineering attacks. Although they may be included in some cyber insurance policies, online scams like social engineering attacks typically aren’t coverable. Such attacks are usually caused by employee negligence or lack of cybersecurity awareness, and therefore are considered the company’s liability.
• Acts of war or terrorism. Direct or hybrid attacks against an organization during an act of war or a terrorist attack typically fall under force majeure conditions that aren’t covered by an insurance policy.
• Negligence or failure to maintain basic security. If an organization deliberately fails to maintain a baseline security standard, it’s held liable for any damages. In some cases, negligence can be grounds for termination of a cyber insurance agreement.

How much does cyber insurance cost?

The cost of cyber insurance varies significantly based on multiple factors, like the company’s size and needs, its current cybersecurity posture, the type of data an organization handles, the chosen coverage type, or the prioritized cyber threats. In many cases, the average cost of cyber insurance ranges from $1,500 to $2,500. However, for enterprises with higher demands, the annual costs can get closer to $10,000.

How to determine if cyber insurance is worth it for your business 

Whether cyber insurance is worth it for your business depends on what kind of protection you’re looking for. You can make a decision based on the potential risks, costs, and the security measures your company currently has in place.

Conduct a cyber-risk assessment

Before you get cyber insurance, you need a clear understanding of your organization’s security needs and vulnerabilities.

• Conduct a full assessment of its current state to clearly define data sensitivity and understand its potential value in the case of a cyber incident.
• Evaluate the digital footprint to determine the likelihood that cybercriminals would maliciously misuse publicly available information.
• Determine what security measures you have in place currently and what vulnerabilities need to be addressed to avoid future liabilities.

Review your current security measures

In addition to the cyber risk assessment, you need to carefully review what security measures your organization currently employs. This covers both digital cybersecurity tools and on-site safeguards, like building security, access control, and physical document storage.

Ensure the software you use is up to date, reliable, and has not experienced any cyber incidents that could also impact your company’s security. Review your security policies and regulatory compliance measures. Hold training for employees to inform them about cyber threats like internet fraud, ransomware, and social engineering. Even if your employees have had training in the past, a refresher course can help them be aware of new and emerging threats and avoid becoming victims of attacks like phishing that would not be covered by cyber insurance.

Calculate your potential exposure

To know what cyber insurance terms would be favorable for your company financially, you need to have a clear idea of how much a potential cyber incident could cost. You can figure this out using the risk exposure formula:

The likelihood of an attack is determined by factors like how prominent cyber incidents are in your industry, past instances of cyberattacks, and the resilience of your security systems. Potential financial impact is based on the company value, its product or the internal data it handles, and possible business disruptions and their effect on the company’s reputation. So if your industry is prone to cyberattacks and your business handles highly sensitive and valuable data, your risk exposure will be greater.

Compare costs vs. coverage

The cost and coverage benefits are crucial in determining which cyber insurance to select. What works best for a rival organization might actually not be the perfect fit for your company’s size or needs.

Conduct a business impact analysis (BIA) to understand how a cyberattack could disrupt your organization and what recovery strategies you need. Based on this information, you can then review coverage options offered by different providers, compare the prices, and find the optimal solution for your company.

How to choose the right cyber insurance policy

If you’ve determined that cyber insurance is worth it for your business, your next step is finding the right policy to suit your needs.

• Assess your specific risk profile. Know which risks to prioritize based on your business model and activities.
• Determine appropriate coverage limits. Consider potential incident scenarios and what limits are feasible for your company.
• Compare first-party and third-party needs. See whether your business may need more support with crisis resolution or legal liability.
• Review exclusions carefully. Knowing coverage exceptions is as important as understanding what it includes. Consider whether the conditions you may need support with are part of the terms.
• Check the insurer's claims payment history. Crisis resolution can be a time-sensitive matter. Ensure you will have access to the financial coverage when you need it.
• Evaluate the incident response services included. Check if the service provider offers assistance according to your potential risk exposure.
• Verify compatibility with existing policies. Review the insurance terms to avoid misalignment with your policies that may lead to liability on your end.

Cyber insurance vs. cybersecurity: What's the difference?

Cyber insurance can be part of your cybersecurity measures. However, it can’t replace an entire security system, only fill in some of its gaps. Cybersecurity as a whole prioritizes proactive and preventative measures, like internal access restrictions, antivirus and antispyware tools, awareness training, and device checks.

Cyber insurance, on the other hand, is a reactive resource you can use to recover your stance after an incident. Unlike some cybersecurity aspects, like stringent password policies, cyber insurance tends not to be typically enforced across businesses — although it’s strongly recommended.

Bottom line: Is cyber insurance worth it?

Simply put, yes — cyber insurance is worth it for many businesses. It helps companies remain afloat even after facing major breaches, providing both financial protection and professional support while handling the aftermath. In the long term, getting cyberattack coverage is cheaper than what a data breach can cost.

However, cyber insurance needs to be treated as an addition to a cybersecurity system, not its replacement. At the end of the day, it provides support only as a response to an incident, not as a measure to prevent it. Businesses need to carefully review their insurance coverage options and find one that fits their risk management strategy.