How much cyber liability insurance do you need?
Depending on the scale and severity of a cyberattack and the cost of breach response and data recovery efforts, settlements or judgments could easily top six figures. Evaluate your business risk to determine how much cyber liability insurance you need.
How does cybersecurity insurance work?
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 fines and 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 $4.9 million according to a study by IBM and the Ponemon Institute. 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 network security breach at their business, third-party cyber liability insurance helps cover your legal costs, including:
- Legal fees and other defense costs
- Judgments if a court finds your business liable
- Out-of-court settlements
Learn more about cyber liability insurance coverage, including the difference between first-party and third-party coverage.
How much cyber liability insurance does a small tech business need?
Most small businesses purchase a cyber insurance policy with a $1 million per occurrence limit, a $1 million aggregate limit, and a $2,500 deductible. If a data breach costs a business about $180 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 sensitive 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.
In fact, some insurance companies offer a risk assessment for your business when you purchase your cyber policy with them. This noy only helps calculate the best rate for you, but also provides you with insight into safeguarding your business from costly cyber incidents – which is the best possible outcome for both you and your insurer.
They'll often recommend steps you can take to prevent risks unique to your business, which in turn helps lower your premium. You might also gain access to proactive cybersecurity tools, such as system monitoring and automated alerts.
Instead of purchasing a standalone cyber liability insurance policy, most small tech companies purchase a technology errors and omissions policy, or tech E&O, which bundles cyber liability coverage with errors and omissions (E&O) insurance. Because the risk of cyber liability is high for tech businesses, insurance providers often bundle these two policies.
What factors determine the amount of cyber insurance coverage I need?
How much cyber insurance your company needs can vary based on several business-specific factors, including:
- The type and sensitivity of the data you manage
- Industry-specific compliance requirements
- The potential financial impact of a data breach
- Your existing cybersecurity measures
- The overall size and scale of your business
Organizations that manage confidential medical information—such as hospitals, clinics, health tech companies, and other healthcare professionals—face higher risks due to strict data privacy laws like the Health Insurance Portability and Accountability Act (HIPAA). A data breach under HIPAA can lead to steep penalties and mandatory reporting obligations, making strong cyber coverage especially critical.
If your business stores sensitive information (such as Social Security numbers or credit card numbers) or operates in a high-risk industry, it’s wise to consider a policy with higher coverage limits. While many cyber policies cap coverage at $5 million, your insurance provider can help you explore options if you need more protection.
What is a limit on cyber insurance?
Like many other forms of business insurance, cyber liability policies include two main types of coverage limits:
- Per-occurrence limit: This is the maximum amount your insurer will pay for a single cyber event or data breach.
- Aggregate limit: This is the total amount your insurance provider will pay for all covered incidents over the course of your policy term, which is typically one year.
Understanding both limits is key to knowing how much financial protection your policy offers in the event of one or multiple cyber incidents.
What are the different types of cyber insurance coverage?
Cyber insurance typically comes in two forms: first-party and third-party coverage.
First-party coverage (often referred to as data breach insurance) helps your business manage the immediate fallout of a cyberattack. This can include costs like restoring lost data, notifying affected individuals, and offering credit monitoring services to impacted customers.
Third-party coverage, on the other hand, protects your business if a client holds you liable for a data breach on their end. This is especially relevant for professionals in the tech space—such as IT consultants or cybersecurity contractors—who could be blamed for a ransomware attack or data breach due to a mistake or oversight.
While all businesses that collect or store personal data can benefit from first-party protection, third-party coverage is particularly important for those offering digital services to others.
Both types can help with broader cyber risks, such as cybercrime investigations, cyberextortion and ransom payments, public relations costs, and loss of income. However, only third-party coverage includes legal defense and settlement costs if you’re sued.
How much does cyber insurance cost?
Cyber insurance premiums are largely based on two factors during underwriting: the amount of personally identifiable information (PII) your business stores and your annual revenue.
On average, TechInsurance customers pay about $145 per month for coverage. However, costs can be higher for IT and cybersecurity businesses that need third-party coverage in case a client holds them liable for a breach.
Insurers also consider the potential costs to defend and investigate cyber insurance claims, which are typically included in your coverage limits.
What are the most common cyber insurance requirements?
While most businesses can apply for cyber liability insurance, insurers usually require certain baseline security measures before issuing a policy. Without these safeguards in place, the risk of a claim is simply too high for many carriers to take on.
To qualify for coverage, your insurance provider may expect you to have the following protections:
- Multi-factor authentication (MFA): Requires two forms of verification—like a password and a one-time code—to access sensitive systems.
- Cybersecurity training: Employees should be educated on identifying threats such as phishing and social engineering, along with following secure practices like using strong passwords and locking screens.
- Regular data backups: Important information should be encrypted and backed up to an isolated system to ensure recovery in case of an attack.
- Endpoint detection and response (EDR): Monitors devices across your network to detect vulnerabilities, enforce updates, and flag unusual activity.
Meeting these requirements not only helps you qualify for coverage but also strengthens your business’s overall cyber defense.
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 small business as they attempt to recoup their losses after a cybercriminal breaches their system. To protect your business from client lawsuits, encourage your customers 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.
Are you able add cyber coverage to another insurance policy?
Yes, in many cases you can add first-party cyber coverage to an existing general liability policy or a business owner’s policy (BOP). A BOP bundles general liability and commercial property insurance, often at a more affordable rate than purchasing the policies separately.
If you need third-party cyber coverage, it's typically included with errors and omissions (E&O) insurance. For IT professionals, this is often referred to as technology E&O, which covers client lawsuits related to cybersecurity failures or service errors.
Keep in mind that cyber insurance doesn't cover every type of risk. For example, most policies exclude issues like power outages, mechanical failures caused by third parties, and physical damage that leads to data loss.
To round out your protection, consider these additional insurance products:
- General liability insurance helps cover lawsuits over third-party bodily injury or property damage.
- Commercial property insurance pays for losses to your workspace and equipment caused by events like fire, theft, or severe weather.
- Errors and omissions (E&O) insurance covers legal costs if a client claims your services caused financial harm or failed to meet expectations.
- Electronic data liability coverage protects against data loss due to physical damage, like a power surge affecting your servers or devices.
Adding the right mix of policies ensures you’re not only protected from digital threats, but from a wide range of business risks.
Get free quotes and compare policies with TechInsurance
TechInsurance helps small business owners compare business insurance quotes with one easy online application. Start an application today to find the right policy at the most affordable price for your business. TechInsurance's licensed insurance agents are available to help you source the right policies based on your unique business needs.
