Cyber insurance pays for the damage when hackers hit your business. They steal your customer data or lock up your computers with ransomware, and suddenly you need computer experts, lawyers and customer notifications. This insurance covers those costs.
What is Cyber Insurance?
Updated: July 22, 2025
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Key Takeaways
Cyber insurance covers costs from hackers and data breaches when your general liability policy won't.
It pays for ransomware attacks and employee mistakes but excludes lightning damage and intentional theft.
Restaurants, salons and contractors need it most because they store customer data without dedicated IT support.
What is Cyber Insurance?
Data Breach Insurance vs. Cyber Liability Insurance
People usually get confused between data breach insurance and cyber liability insurance. They have similar names but very different coverage:
Coverage Scope | First-party costs when your data gets stolen | Comprehensive cyber protection including data breaches |
Incident Types | Data theft and exposure events | All cyber incidents: ransomware, system failures, privacy violations |
What It Covers | Customer notifications, credit monitoring, forensic investigations | Everything data breach covers PLUS business interruption, ransom payments, third-party lawsuits |
Liability Protection | Limited to notification requirements | Covers lawsuits if clients sue you for failing to protect their data |
Business Interruption | Usually not included | Covers lost income from cyber incidents |
Cost | Lower premium (narrower coverage) | Higher premium but comprehensive protection |
Best For | Businesses only concerned about data theft | Most small businesses needing complete cyber protection |
OTHER BUSINESS INSURANCE YOU'LL NEED
Cyber insurance covers digital threats, but what about everything else? Make sure you have:
- General liability insurance for customer injuries and property damage
- Professional liability insurance (E&O) for service-related lawsuits
- Workers' comp insurance for employee injuries
- Business owner's policy (BOP) for an affordable bundle of multiple coverage types
What Does Cyber Insurance Cover?
Cyber liability insurance works differently than you might expect. Though coverage may vary by insurer and policy terms, it generally pays for costs from hackers and data breaches, but it won't cover a broken server or storm damage to your computers. The key difference is whether criminals caused the problem or something else did:
Hackers encrypt your files with ransomware. | ✅ | A dental office loses access to all patient records and pays $15,000 for ransom and recovery services. |
An employee mistakenly sends customer data to the wrong email address. | ✅ | An accounting firm accidentally emails tax returns to the wrong client and needs to pay for breach notifications. |
Cybercriminals steal credit card data from your website. | ✅ | An online retailer discovers hackers accessed their payment system and must hire forensic experts and provide credit monitoring. |
Lightning destroys your computer server. | ❌ | A restaurant's point-of-sale system gets fried during a thunderstorm, but physical damage isn't a cyber incident. |
Employee steals customer information for personal profit. | ❌ | An HR manager sells employee records to identity thieves, but your policy excludes intentional criminal acts. |
Software malfunction deletes your customer database. | ❌ | When software crashes, a marketing agency loses its entire client list, but technical failures aren't cyber attacks. |
A scammer tricks an employee into wiring money through fake email. | ✅ | After receiving a convincing phishing email, a construction company employee transfers $25,000 to a fraudulent vendor. |
Your website crashes during routine maintenance. | ❌ | A law firm's website goes offline for scheduled server updates, but planned downtime isn't a cyber incident. |
How Much Cyber Insurance Do You Need?
Choosing cyber insurance coverage feels overwhelming, but focus on three key areas to find what works for your business:
Know your data risk.
Think about what information hackers would want from your business. Credit card numbers and Social Security numbers create bigger problems than email addresses. Count how many customers would be affected and remember that you'll need to notify each one individually if something happens.
Understand the real costs.
In addition to any ransom payments, you'll pay for computer experts to investigate, lawyers to handle legal matters and notifications to customers. A breach affecting 1,000 people can easily cost tens of thousands in required mailings alone.
Consider your industry.
Some businesses face tougher rules than others. Health care and finance companies deal with strict regulations and bigger fines. If you handle client data professionally, you'll also need protection from lawsuits. Plus, many clients require specific coverage amounts before working with you.
Who Needs Cyber Insurance?
You might think cyber insurance is only for tech companies, but that's one of the biggest misconceptions small business owners have. You need cyber insurance protection if you store any customer information (even basic contact details).
Hackers prefer targeting non-tech businesses because they typically have weaker security and less cybersecurity awareness. Your restaurant's customer email list, your salon's appointment system or your contractor business's client database all contain valuable information that cybercriminals want.
Look at how vulnerable different business types are:
Restaurants and Cafes
Online ordering systems, customer loyalty programs and payment processing create multiple attack points. Even your email marketing list has value to cybercriminals.
Salons and Spas
Appointment scheduling software, customer contact information and credit card payments stored on tablets or computers all need protection.
Contractors and Service Providers
Client contact lists, project details, invoicing systems and employee payroll information are prime targets for data thieves.
Retail Shops
Customer databases, payment processing systems and inventory management software contain sensitive financial and personal information.
Professional Services
Whether you're an accountant handling tax documents, a lawyer managing client files or a consultant storing business plans, sensitive client data creates considerable financial risk.
Cybercriminals know that a local business owner focused on serving customers usually lacks dedicated IT staff or advanced security systems. They can breach your systems faster and with less risk of detection than attacking a technology company with robust cybersecurity measures.
Plus, your business likely connects to larger networks through vendors, banks or clients, making you a stepping stone to bigger targets.
Cyber Liability Insurance: Bottom Line
Small business owners often assume cyber insurance is only for tech companies, but hackers also target restaurants, salons and contractors because they store valuable customer data without dedicated IT support. When these attacks happen, your general liability policy excludes digital incidents. Only cyber insurance covers the costs from ransomware attacks to employee mistakes.
Cyber Security Insurance: FAQ
Cyber insurance is worth considering, whether or not you're in the tech industry. We've answered the most frequently asked questions about it:
How much does cyber insurance cost for small businesses?
Small business cyber insurance costs vary widely based on your industry and risk factors. A restaurant with basic customer data typically pays less than an accounting firm handling sensitive tax documents. Your premium depends on employee count, data types you store and existing security measures.
What does cyber insurance NOT cover?
Cyber insurance won't cover physical equipment damage, like fire or flood destruction. It also excludes intentional employee crimes, such as stealing customer data for profit, and pre-existing security vulnerabilities you knew about but ignored. It covers outside attacks and honest mistakes, not equipment failures or inside jobs.
What's the difference between data breach and cyber liability insurance?
Data breach insurance focuses on first-party costs like customer notifications and credit monitoring after data theft. Cyber liability insurance is broader, covering data breaches plus third-party lawsuits if clients sue you for failing to protect their information. Most small businesses need comprehensive cyber liability coverage.
Do I need cyber insurance if I have general liability insurance?
Your general liability policy excludes cyber incidents, creating a major coverage gap. General liability handles physical injuries and property damage, but won't pay for data breaches, ransomware, or privacy violations. You need separate cyber insurance because digital threats require specialized coverage.
Does cyber insurance cover ransomware?
Yes, most policies cover ransomware attacks, including ransom payments, data recovery and business interruption losses. Coverage varies by insurer. Some require involving law enforcement or have payment limits. Policies also cover the aftermath: forensic investigations, legal fees, customer notifications and system restoration.
How do I get business insurance that includes cyber coverage?
To get business insurance with cyber coverage, assess your current policies for gaps first. Many insurers offer cyber insurance as policy add-ons or standalone coverage. Start with your current agent because they understand your business and can bundle for savings. Compare quotes since business insurance costs vary by industry and risk factors.
What should I do immediately after a cyber attack to file a claim?
File a claim immediately because most policies require prompt notification. Document everything, from screenshots to evidence, and avoid paying ransoms before contacting your insurer. Your cyber insurance provides 24/7 claims support with forensic experts, legal counsel and crisis specialists. A quick response reduces total costs and business disruption.
About Mark Fitzpatrick
Mark Fitzpatrick, a Licensed Property and Casualty Insurance Producer, is MoneyGeek's resident Personal Finance Expert. With over five years of experience analyzing the insurance market, he conducts original research and creates tailored content for all types of buyers. His insights have been featured in publications like CNBC, NBC News and Mashable.
Fitzpatrick holds a master’s degree in economics and international relations from Johns Hopkins University and a bachelor’s degree from Boston College. He's also a five-time Jeopardy champion!
Passionate about economics and insurance, he aims to promote transparency in financial topics and empower others to make confident money decisions.