Everything you need to know about crypto insurance

Security in the crypto industry is crucial as more people invest in them and embrace the rise of digital assets and blockchain technology. However, there is always a chance of loss or theft, just like with other financial assets. With that, it is important to have your crypto assets insured. 

You may have heard of life, car, or medical insurance that will protect your personal assets. There is also such a thing as cryptocurrency insurance that will secure both you as well as companies from financial harm caused by loss or theft of their digital assets. Although it's fairly a new concept, many are already interested to get one as the industry continues to get bigger.

As more people dive head-first into this industry even with its volatility, more users became more interested to insure their investments early on. If you haven’t heard about crypto insurance before and you’re planning to get one, here’s what you need to know: 

What is crypto insurance? 

Before delving deeper into the specifics of blockchain insurances, it is important that you first learn what they are really about. Technically speaking, crypto insurance serves as a protection from financial damages brought by breaches like thefts and cyberattacks. 

Since these circumstances have a significant negative impact on the exchange and users, having insurance assures that there will be someone who’ll pay for token loss. Each policy can be implemented on a personal, exchange, or wallet level. 

Most of the time, you can avail a premium plan to secure your wallet that will also allow you to file a claim for any violations that may occur. Since this still remains as a new idea, only a few people are familiar with it since it’s not yet that common for crypto assets to be insured. In fact, there are still a few exchanges that offer it. 

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Why do cryptocurrencies need insurance? 

Investing always entails several risks and having insurance is one way you can protect yourself from financial loss due to unforeseen events. One of the main reasons you should get crypto insurance is that since these digital assets are stored in digital wallets. This makes them vulnerable to hacking and cyberattacks. 

Without the private key, it is impossible to recover the digital assets if a hacker gains access to a crypto wallet and takes them. For the person or company holding the assets, this could mean huge financial losses.

Aside from that, cryptocurrencies are also extremely volatile as seen on its price charts. If things go wrong and an asset starts having a bearish run, this can lead to huge losses. While some people may be willing to embrace the risks, there are those who want to have a protection against drastic changes. 

How does crypto insurance work?

Crypto insurances were made like a safety net that will back you up in case your assets get stolen or hacked. In both situations, the damages are highly reduced since you have a backup plan that won’t leave you bankrupt in the worst scenarios.

Since it gives you a sense of security, you can rely on your crypto insurance against 51% attacks, lost keys, or smart contract covers as well. By having one, you’ll be able to sleep better at night knowing that your assets are always protected and you can enjoy the value of money you have shelled out. 

If you’re wondering how insurance companies are able to cover such protection, they get their funds from the exchange fees and liquidation penalties. In the event that a trader’s position has already been liquidated and its closing price remains higher than the declared bankruptcy price, the remaining margin will then be moved as an insurance fund. 

Are crypto insurances backed by the government? 

So far, the answer to that is no since governments only provide insurances for cash, stocks, and bonds and stocks. Since crypto are decentralised assets, there aren’t any central authorities who support such types of insurance plans. 

Still, many people are looking forward to the plans of the Fed​​eral Deposit Insurance Corporation (FDIC) which said that they plan to consider covering these assets anytime soon. FDCI is an independent arm of the government which provides up to $250,000 protection for people’s savings. 

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Popular crypto insurance companies 

Though there aren’t many crypto insurance companies available today, there are already a handful of some which you may feel free to choose from. Here are some options you may consider: 

IBM 

With its IBM Blockchain initiative, IBM simplifies numerous areas of the insurance sector. The company has helped insurance groups in automating their underwriting and claims procedures with their field of research. These adjustments can shorten processing times and eliminate false claims.

IBM insurance is quite more popular for companies instead of individual insurers. It is also easier for companies to make the most out of opportunities and earn revenues through their available business models. 

Etherisc 

The Etherisc development platform is more focused on decentralised insurance applications, making itself known as one of the best crypto insurance options one can get. The company creates decentralised, blockchain-focused software for several insurance market segments. It also uses ledger technology to reduce inefficiencies like expensive transaction fees and long claim processing times.

With this, insurers can purchase airline delay insurance, hurricane insurance, crypto and defi insurance, and collateral protection for loans backed by cryptocurrencies. It also happens to be an open-source, free insurance platform that can make it more appealing for those who are looking for a great insurance plan. 

Chainlink Labs 

Crypto insurance Chainlink Crypto Insurance is a new service offered by Chainlink that aims to provide protection against losses due to hacks or other security breaches in the crypto industry.

With the help of the decentralised oracle network Chainlink, insurance contracts may be kept current and impenetrable by applying off-chain data to smart contracts. For instance, this insurance can retrieve data that will help smart contracts to verify and automate damage compensation. This insurance makes use of a decentralised oracle network DON. 

Even though Chainlink isn't an insurance provider, it resolves a significant problem for decentralised, smart contract-based insurance providers. Smart contracts can operate well without relying on a single centralised data source thanks to DONs' integration of real-world data.

Coincover 

Coincover is one of the world’s first combined security and insurance solutions that was made for crypto assets. With their special features, investing in making digital investments simpler, safer, and secure for all users.

This crypto insurance has several features that make it more appealing for insurers. Among those that they offer include a 24/7 wallet monitor that can provide warning alerts for suspected attacks, lost key covers to help recover the funds in lost wallets, and theft protection for a full guarantee in case of theft. 

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How much does crypto insurance cost? 

Now that you know some of the most popular crypto insurance providers you can rely on, you may be wondering about how much these plans actually cost. Given the fact that this concept remains relatively new in the industry, the cost of it may vary from one policymaker to another. 

Most of the time, the price of a crypto insurance may be influenced by several factors such as: 

• Policy limits
• Type of insurance policy
• How many crypto assets you have
• Causes of damage like fraud, hacking, or lost keys,
• Amount of crypto assets lost 
   

Tips to get the best crypto insurance plan

Aside from learning more about the insurance plans you can get, you may also want to learn about a few tips on how you can get the best one out there. Here are some reminders you might consider: 

• Know its coverage → Before getting a crypto insurance plan, take some time to understand what it offers. For example, some policies may only cover theft or hacks while there are those that can also support you from market volatility.
• Review each offer → Insurance policies have limits on how much you can get on your claims. Make sure you understand what the limits are and whether they are sufficient to cover your crypto assets or not.
• Read the reviews of each insurance provider → Look for one that has a good reputation and a track record of paying claims. You can also check online reviews and ratings to get an idea of how the company is perceived.

These are just some of the factors you would have to understand about crypto insurance plans and what they are all about. By learning more about them and how well they can protect your digital assets, you can feel more confident with the coins you stake. 

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Words: Kyra Jimenez