What Is Cyber Insurance and Do You Need It? The 2026 Guide

Reading Time: 15 min  |  Last Updated: February 25, 2026

A City Lost $18.3 Million to Ransomware. Their Insurer Refused to Pay a Single Dollar.

In February 2024, the City of Hamilton, Ontario, was hit by a ransomware attack that crippled 80% of its infrastructure. Emergency services were disrupted. Municipal operations ground to a halt. The recovery bill? $18.3 million.

Hamilton had cyber insurance. They filed the claim. And in April 2025, the insurer said no.

The reason? Hamilton hadn't fully implemented multi-factor authentication.

The attackers had exploited weak credentials on an externally-facing system that didn't have MFA enabled. The insurance policy specifically required MFA on all critical systems. Hamilton hadn't completed the rollout. So the insurer invoked the policy's security requirements clause — and denied the entire $18.3 million claim.

Eighteen point three million dollars. Paid entirely by taxpayers. Because of one security checkbox that wasn't ticked.

This story tells you everything you need to know about cyber insurance in 2026: it can save your business — or it can be a completely worthless piece of paper. The difference is in the details.

Let me explain how cyber insurance actually works, what it really covers, what gets claims denied, and whether you actually need it.

What Is Cyber Insurance?

Cyber insurance — sometimes called cyber liability insurance — is a policy that covers the financial costs of a cyberattack or data breach. Think of it as car insurance, but for your digital life.

Just like car insurance covers the damage if you're in an accident, cyber insurance covers the damage when your business suffers a breach, ransomware attack, or data theft.

But here's where the analogy gets important: car insurance doesn't cover you if you were driving drunk. And cyber insurance doesn't cover you if you weren't following basic security practices.

What Cyber Insurance Covers (And What It Doesn't)

Sources: MoneyGeek, Astra Security

Notice the pattern in the "NOT Covered" column? Almost every exclusion relates to negligence — the business failed to do something basic. Didn't enable MFA. Didn't patch known vulnerabilities. Didn't maintain required controls. The insurer's logic is: "We'll protect you from bad luck. We won't protect you from bad habits."

Cyber Insurance by the Numbers (2026)

Sources: SQ Magazine, World Metrics, Security.org

Real Claims: The Ones That Paid — And The Ones That Didn't

Nothing makes this clearer than real stories. Here's what separates a claim that saves a business from one that leaves them holding the bag:

✅ Paid: Manufacturing Company — Ransomware ($1.55 Million)

A mid-sized manufacturer was hit through an unpatched remote desktop port. Five days of halted production. $500,000 ransom demand. Total damages: $1.55 million. The insurer paid in full because the company had MFA deployed, endpoint protection running, documented incident response, and reported the breach within 24 hours.

✅ Paid: Healthcare Provider — Data Breach ($1.3 Million)

An email compromise exposed 50,000 patient records. HIPAA-regulated response costs — notifications, credit monitoring, legal proceedings — totalled $1.3 million. Paid because the provider maintained compliance with security training requirements and reported promptly.

❌ Denied: City of Hamilton — Ransomware ($18.3 Million)

As we opened with. MFA wasn't fully deployed. Policy required it. Entire claim denied. $18.3 million out of taxpayers' pockets.

❌ Denied: BEC Wire Transfer ($175,000)

A real estate firm lost $175,000 when attackers impersonated a vendor and redirected a wire transfer. The firm's policy didn't include a social engineering endorsement. Claim denied because BEC wasn't in their specific coverage.

Sources: Embroker, Specops, ASI Networks

Why Claims Get Denied (The Top 5 Reasons)

Do YOU Need Cyber Insurance?

You Probably Need It If:

• You handle customer personal data — names, emails, payment info, health records
• You process financial transactions — e-commerce, wire transfers, invoicing
• You rely on digital systems to operate — and downtime means lost revenue
• You're in a regulated industry — healthcare, finance, legal, education
• You have clients who require it — increasingly, enterprise clients require vendors to carry cyber insurance

You Might Not Need It If:

• You're a solo freelancer with no client data and minimal digital assets
• Your business is entirely offline with no digital customer records

But honestly? In 2026, that second category barely exists anymore. If you have a business email address, a website, and customer data of any kind — you're a target. And with premiums averaging $83/month for small businesses, the cost of insurance is a rounding error compared to the cost of an uninsured breach.

How to Buy Cyber Insurance (Without Getting Burned)

Step 1: Get Your Security House in Order FIRST

Don't buy insurance and then worry about security. Do it the other way around. Insurers will ask about your security posture on the application, and what you claim must be true — misrepresentation is grounds for denial.

At minimum, have these in place before applying:

This isn't just for the application. These controls are what get your claim paid when something goes wrong.

Step 2: Understand What You're Buying

Read the policy. Actually read it. Or have someone explain it. Focus on:

• Coverage limits — is the payout cap sufficient for a serious breach?
• Deductible — how much you pay out-of-pocket before insurance kicks in
• Endorsements — BEC, social engineering, and supply chain attacks often need separate endorsements
• Exclusions — what's NOT covered? Acts of war? Vendor failures? Regulatory fines in certain jurisdictions?
• Notification window — how quickly must you report an incident? (Usually 48-72 hours)

Step 3: Be Brutally Honest on the Application

If the application asks "Do you have MFA enabled on all remote access?" and you have it on email but not on your VPN — the answer is no. Saying "yes" when it's not fully true is the fastest path to a denied claim. Fix the gap, then answer honestly.

Step 4: Review and Update Annually

Your threat landscape changes. Your business changes. Your security posture changes. Review your policy every year. Make sure coverage still matches reality.

The Bottom Line

Cyber insurance is not a replacement for cybersecurity. Let me say that louder for the people in the back: cyber insurance is not a replacement for cybersecurity.

It's a safety net. A financial backstop for when something goes wrong despite your best efforts. And like every safety net, it only works if you've done your part.

Hamilton thought they had protection. $18.3 million in damages later, they discovered that a policy is only as strong as the security controls backing it up. One missing checkbox — MFA not fully deployed — turned a survivable incident into a catastrophic financial loss.

The manufacturer that got paid $1.55 million? They had MFA. They had endpoint protection. They had a response plan. They reported in 24 hours. The insurer paid without question.

Same type of attack. Same type of policy. Completely opposite outcomes.

So here's my advice: implement the security basics from our small business guide. Then buy cyber insurance as your safety net. Then sleep a little better knowing that if the worst happens, you've got both the defences AND the financial backup to survive it.

Insurance protects your finances. Security protects your business. You need both.

Continue the full series: antivirus, Zero Trust, 10 mistakes, ransomware, VPN vs Zero Trust, social engineering, password managers, supply chain, MFA, WiFi security, encryption, dark web, privacy, AI cybersecurity, quantum, firewalls, cloud security, small business, IoT security, and phishing guide.

— Harsh Solanki, Founder of FutureInsights.io

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