Why Small Businesses Need Cyber Insurance (And How to Get It)

Cybercrime doesn’t discriminate by size—and small businesses are no exception. In fact, their limited security budgets and lean IT teams make them especially attractive to cybercriminals. Yet despite growing threats, many small business owners still operate under the assumption that cyber insurance is either unnecessary, unaffordable or too complex to bother with.

That mindset is risky. Cyber insurance isn’t a luxury—it’s crucial to managing digital risk in today’s environment.

Small Businesses Are Prime Targets

It’s a common misconception that cyber criminals only go after big corporations. Small and mid-sized businesses (SMBs) face cyber threats just as often—and sometimes with more severe consequences.

Ransomware, data breaches, and phishing attacks frequently hit small businesses, which often lack the resources to respond effectively. A single cyber breach can lead to lost revenue, reputational damage, regulatory penalties, and even business closure.

What Does Cyber Insurance Actually Cover?

Cyber insurance helps businesses recover financially and operationally after a cyber incident. According to the Insurance Bureau of Canada and Erie Insurance, policies vary, but most plans include coverage for:

• Data recovery and business interruption
• Costs associated with notifying customers
• Legal and regulatory penalties
• Ransom payments and extortion negotiations
• IT forensics and incident response

Cyber insurance won’t prevent a cyberattack, but it can significantly reduce the damage—especially the costs that come after an incident.

Insurance Alone Isn’t a Strategy

According to Dark Reading, “Businesses should consider cyber insurance a risk management tool, but it’s not a comprehensive solution to all cybersecurity challenges”. While coverage is essential, insurance alone is not a substitute for good cybersecurity practices.

As Dark Reading points out, cyber insurance must be part of a layered defence strategy—not the first and only step. Data backups, MFA, written policies and procedures, industry-grade small office firewalls, security awareness training, and many other security controls are required even just to qualify for cyber insurance.

Insurers increasingly require evidence of basic protections (like firewalls, employee training, and multi-factor authentication) before issuing or renewing a policy. In other words, if your business isn’t taking cybersecurity seriously, you may be denied coverage—or worse, a claim could be rejected after an attack.

Cost is a Perceived Barrier to Buying Cyber Insurance

Despite its importance, many small businesses still don’t carry cyber insurance. There’s a perception that cyber insurance is a “big business” expense. But this idea is becoming outdated. The market is shifting to offer plans that scale with business size and risk, including more affordable options for startups and smaller teams.

How to Get the Right Cyber Insurance Policy for Your Small Business

Choosing a cyber insurance policy doesn’t need to be overwhelming. Here’s a simple approach based on guidance from the US Chamber of Commerce:

1. Determine Your Risk Tolerance. When choosing a cyber insurance policy, start by assessing your risk tolerance—identify which systems are critical to your operations and which you could function without. This helps ensure your coverage protects the assets most tied to your revenue.

2. Consider the cost and deductible. Weigh the annual premium against the potential out-of-pocket expense if a cyber incident occurs. The goal is to minimize financial impact in the event of a breach.

3. Pay close attention to what’s included in the policy. Coverage varies widely, and some policies only protect against certain types of attacks. Don’t assume your general liability or errors and omissions policy offers adequate cyber protection. Always read the fine print and ask for clarification if needed.

4. Match the coverage to your business’s specific needs. Options like payment fraud, data loss, third-party liability, and business interruption may not all apply to your company. Look for a provider familiar with small and mid-sized businesses to ensure relevant, right-sized protection.

Making an informed decision means understanding both your operational priorities and the limitations of each policy.

Don’t Wait Until After a Breach.

Cyber insurance isn’t retroactive. Once you’re compromised, it’s too late to buy protection. Think of it as a fire extinguisher: you need it before the flames start.

The Bottom Line

Cyber insurance isn’t just for tech companies or major corporations—it’s for any business that uses email, stores data, or accepts online payments. In other words, it’s for everyone.

Today’s digital threats are fast-moving, expensive, and increasingly sophisticated. For small businesses, a solid cyber insurance policy can be the difference between bouncing back quickly—or not at all.

It’s time to stop treating cyber insurance as optional and start recognizing it for what it is: a critical safety net in the digital economy.

References

“Does Your Small Business Need Cyber Insurance?” Get Cyber Safe, (Government of Canada) 13 Oct. 2022, www.getcybersafe.gc.ca/en/blogs/does-your-small-business-need-cyber-insurance.

“Telling Small Businesses to Buy Cyber Insurance Isn’t Enough”, Dark Reading. 23 October 2023.  https://www.darkreading.com/cyber-risk/telling-small-businesses-to-buy-cyber-insurance-isnt-enough

“Cyber Insurance: Why Every Small Business Needs It”, Erie Insurance, 3 March 2025. https://www.erieinsurance.com/blog/cyber-small-business

Harrison, Kayla. “How to Choose Cyber Insurance.” CO- by US Chamber of Commerce, 20 Aug. 2021, www.uschamber.com/co/start/strategy/how-to-choose-cyber-insurance.