How much cyber liability insurance do you need?
Depending on the scale and severity of a cyberattack and the cost of data recovery, settlements or judgments could easily top six figures. Evaluate your business risk to determine how much cyber liability insurance you need.
What does cyber insurance actually pay for?
Cyber liability insurance helps companies recover from cyberattacks and other data breaches either at your business or your client’s business. It covers the cost of responding to, investigating, and cleaning up damage caused by a data breach.
After a breach, first-party cyber liability coverage pays for:
- Hiring an expert to investigate the breach and assist with regulatory compliance
- Notifying customers about the breach
- Crisis management and public relations
- Business interruption expenses, including hiring additional staff, renting equipment, or purchasing third-party services
These are the costs you or your clients would pay for directly after a data breach without a cyber liability policy in place. And the expenses add up quickly.
The average cost of a data breach is about $250 per record lost. A business with a few thousand customers could face hundreds of thousands of dollars in costs.
If a client sues your tech company for failing to prevent a data breach at their business, third-party cyber liability insurance helps cover your legal costs, including:
- Attorney's fees and other legal defense costs
- Judgments if a court finds your business liable
- Out-of-court settlements
How much cyber liability insurance does a small tech business need?
Most small tech companies purchase a cyber liability insurance policy with a $1 million per occurrence limit, a $1 million aggregate limit, and a $1,000 deductible. If a data breach costs a business about $250 per client or customer record, this coverage limit will be high enough to protect any business that handles a few thousand records.
For high-risk businesses like those specializing in data storage, purchasing a cyber liability policy with higher coverage limits may be a smart option. Many policies have a maximum coverage limit of $5 million, but you can discuss your need for more coverage with your insurance provider.
Instead of purchasing a standalone cyber liability insurance policy, most small tech companies purchase a technology errors and omissions policy (tech E&O) that includes cyber liability coverage. Because the risk of cyber liability is high for tech businesses, insurance providers often bundle these two policies.
How much cyber liability insurance does an independent contractor need?
Independent contractors often don’t need to carry first-party cyber liability insurance since the policy is limited to data breaches that occur on the policyholder’s network. But contractors may need third-party cyber liability insurance to protect themselves from lawsuits.
Some clients require independent contractors to carry third-party cyber liability insurance before they can begin work on a project. Cyber liability insurance gives clients financial peace of mind since it reassures them you can pay for a cyber liability lawsuit if your work results in a data breach. Client contracts most often require a $1 million per occurrence limit.
How much cyber liability insurance do your clients need?
While your errors and omissions insurance covers data breach lawsuits, you'd rather avoid the lawsuit altogether. Ensure your clients have a risk management plan that takes into consideration the cost of a data breach.
If your clients have cyber liability insurance, they'll be less likely to sue your tech business as they attempt to recoup their losses after a data breach. To protect your business from client lawsuits, encourage your clients to purchase cyber liability insurance or require it before you take on a risky project.
If you require that a client purchase cyber liability insurance in a work contract, you can adjust the requested coverage limit. Cyber liability policies have limits that range from $1 million to $5 million or more.
How much does cyber liability insurance cost?
The median cost of a cyber liability policy with a $1 million per occurrence limit and a $1 million aggregate limit is about $145 per month or $1,745 per year for TechInsurance customers. Many small businesses (39%) pay less than $1,500 per year for cyber liability insurance, and 41% pay between $1,500 and $3,000 per year.
The cost of this policy increases with the amount of sensitive data your company handles.
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