Think You're Covered? 10 Myths About Cyber Insurance That Could Cost You

Think You're Covered? 10 Myths About Cyber Insurance That Could Cost You

Cyber insurance is one of those things many businesses assume they’ll never need—until the day they do. The problem is that many companies think they’re covered for every possible cyber threat just because they have a policy in place. In reality, misunderstandings around cyber insurance are more common than you'd expect.

I remember when a friend of mine who runs a small e-commerce business was hit with a ransomware attack. She had cyber insurance, so naturally, she thought she was in the clear. But then came the bad news: her policy didn’t cover the type of ransomware that attacked her systems, and apparently, she did not have the necessary controls in place to try to mitigate those risks. She ended up losing thousands of dollars—not just from the ransom but from the revenue lost during her downtime.

Stories like this show just how important it is to understand what cyber insurance can and can’t do for your business. Below, we’ll bust ten common myths that could be luring you into a false sense of security.

Myth 1: Cyber Insurance Covers Every Cyber Incident

This is a big one. Many businesses believe that once they’ve purchased cyber insurance, they’re safe from any cyber-related issue. Sadly, that’s not the case. Cyber insurance policies come with specific exclusions, and they don’t automatically cover every possible incident. Things like insider threats, where an employee intentionally or unintentionally causes a breach, aren’t always included.

What you can do:
Carefully review your policy. If you’ve got critical data on the line, like customer records, find out if breaches involving insiders are covered. Not every cyberattack will be a Hollywood-style hack from some mysterious person in a hoodie—sometimes, it’s just a disgruntled employee with too much access. Take control of access to your systems, and make sure your employees only have the type of access they need to perform their job duties.

Myth 2: A One-Size-Fits-All Policy Will Protect Your Business

Not all businesses are the same, so why would you expect a one-size-fits-all policy to work for you? The risks faced by a small online retailer are different from those of a healthcare provider handling sensitive patient data. Yet many businesses think they can buy a generic cyber insurance policy and be set.

What you can do:
Cyber insurance needs to be tailored to your business. If you’re in an industry with specific regulatory requirements—like finance or healthcare—your insurance needs to reflect that. Get a custom policy that covers the risks unique to your business. Talk to your provider about industry-specific risks and coverage.

Myth 3: Cyber Insurance Replaces the Need for Strong Security Measures

A lot of people assume that once they’ve signed up for cyber insurance, they can relax a bit on the security front. This couldn't be further from the truth. In fact, insurers will often assess the security measures you have in place before they approve your coverage. If your defences are weak, you might not get insured at all—or you’ll pay through the nose for coverage.

What you can do:
Think of cyber insurance as a safety net, not a substitute for security. Your business still needs to be proactive: use firewalls, keep software updated, train employees to spot phishing emails, and back up data regularly. If you slack on these, even the best insurance won’t protect you from the damage done during an attack.

Myth 4: Cyber Insurance Always Covers Regulatory Fines

This one is tricky. Many business owners think that if they get hit with a regulatory fine—like under GDPR or the California Consumer Privacy Act (CCPA)—their cyber insurance will pick up the tab. But not every policy covers regulatory fines or the legal costs that go along with them.

What you can do:
Look specifically at whether your policy includes coverage for regulatory fines and penalties. Depending on the nature of your business, the risk of getting fined could be high. In that case, you’ll want to ensure this type of protection is baked into your plan.

Myth 5: Only Big Companies Need Cyber Insurance

I used to think this one myself. If you’re running a small business, it’s easy to assume cybercriminals are only targeting the big guys—multinationals with deep pockets. But that’s not true at all. In fact, small businesses are often targeted because their security systems are easier to crack.

A local bakery I know of thought they didn’t need cyber insurance until a point-of-sale system breach left them scrambling. Their system was compromised, customer card data was stolen, and they had to pay a pretty penny to clean it up. Had they been insured, it wouldn’t have been so painful.

In fact, according to various online sources, cybercriminals increasingly target small and mid-sized businesses, often more than many realize. In 2024, 43% of cyberattacks focused on SMBs. One key reason for this is that smaller companies typically don't have the advanced security systems that larger organizations use, leaving them more vulnerable to attacks. Hackers exploit these security gaps, knowing that smaller companies are easier to compromise.

What you can do:
No matter your size, you’re at risk. Cyber insurance is just as critical for small businesses as it is for Fortune 500 companies. Criminals don’t care about your size—they care about easy access.

Myth 6: Cyber Insurance Covers Lost Revenue from Downtime

You might think that if your business is knocked offline by an attack, your insurance will cover any revenue you miss out on while you’re down. Unfortunately, that’s not always the case. Some policies don’t automatically cover losses related to business interruptions.

What you can do:
If you’re worried about revenue loss during downtime, make sure your policy includes business interruption coverage. This can be especially important for companies that rely on uninterrupted service, like e-commerce platforms, service providers, or SaaS businesses. Double-check that your policy covers you for lost income and ongoing operational expenses during a shutdown.

Myth 7: Cyber Insurance Automatically Covers Third-Party Vendor Breaches

Many businesses rely heavily on third-party vendors—cloud storage, payment processors, etc. So, if your third-party vendor gets hacked, surely your insurance will cover it, right? Wrong. Not all policies cover third-party breaches, and if your vendor gets hit, you might be stuck dealing with the fallout yourself.

What you can do:
Check if your cyber insurance extends to breaches caused by third-party vendors. If your business relies on external providers, this is a crucial point to address. Remember, your data is only as secure as the weakest link in your supply chain.

Myth 8: Ransomware Payments Are Always Covered

Ransomware attacks are on the rise, and many businesses believe that if they get hit, their insurer will pay out the ransom. But in reality, some cyber insurance policies don’t cover ransomware payments at all, or they place strict limitations on them.

What you can do:
Ransomware is a serious threat, and you’ll want to make sure your insurance policy specifically addresses it. Does your policy cover ransom payments? If so, is there a limit on the amount they’ll reimburse? Getting clear answers to these questions could save you big time down the road.

Myth 9: Once You Have Cyber Insurance, You’re Set for Life

Cyber threats evolve rapidly. What was considered an adequate policy two years ago might leave you exposed today. Many businesses make the mistake of thinking that once they’ve bought a policy, they never need to update it.

What you can do:
Review your policy at least once a year to make sure it’s still up to date with your business’s current risk profile. As your business grows or adopts new technology, your exposure changes. If you’ve expanded into new markets or started storing more sensitive data, you’ll likely need additional coverage.

Myth 10: Cyber Insurance Will Restore Your Reputation

After a breach, businesses can suffer lasting damage to their reputation. Customers lose trust, and rebuilding that trust can be difficult. While cyber insurance can cover the financial costs of a breach, it won’t necessarily cover the cost of restoring your brand’s image.

What you can do:
Some policies offer coverage for public relations and crisis management, but not all. If maintaining your brand’s reputation is a priority, look into additional coverage options for PR and reputation management. Also, having a plan in place for handling customer communication and press after a breach will make a huge difference.

Conclusion

Cyber insurance is a vital part of protecting your business, but it’s not a silver bullet. Understanding the limitations of your policy and ensuring it covers the right risks for your industry and size is critical. Don’t fall for the myths and misconceptions that could leave you exposed at the worst possible time.

Make sure you’re asking the right questions, and if in doubt, speak to an expert who can guide you through the fine print. Just like locking your doors at night, cyber insurance is about peace of mind—provided you’ve covered all the bases.