A Beginner’s Guide to Crypto Insurance

The crypto industry is famous as volatile and challenging for traders. Many resort to acquiring stablecoins during critical times as they are a safe haven until the volatility storm passes. At any time, you can use the USDC calculator to see its relation to fiat currencies.

Stablecoins are a protection against crypto market volatility. But what about other threats, such as cyberattacks or losing funds due to a crypto exchange closure? That’s where you should consider crypto insurance. These are special types of insurance policies that refer to digital assets and specifics surrounding this market. Check out our guide to learn more and understand its importance.

Understanding the Mechanics of Crypto Insurance

The crypto market’s popularity made it an attractive choice for investors, but it also caught the attention of cybercriminals. That led to a new coverage type for those doing business in this space, and that’s crypto insurance.

At its core, this insurance refers to digital assets that a person or business might lose due to particular circumstances. That could be theft, software or hardware failure, etc. The estimation is that hackers stole over $1,7 billion in cryptocurrency in 2023. We all remember the largest crypto thefts happening to exchanges like FTX or Ronin.

Insurance companies currently offer policies that only restrict to certain events and circumstances. Furthermore, most providers offer policies suitable for institutions that invest their capital in the crypto market or digital exchanges.

As for traders and asset holders, you might be a part of an insurance policy if you have an account in a wallet supported by an exchange with active insurance. The policy covers your assets only if a failure occurs with the exchange. You can find several insurance providers offering crypto policies to individuals, but these are mostly startups that only recently entered the market.

How Does Crypto Insurance Work?

The process begins by evaluating the risk of the person or entity insured. That includes the value of insured assets, current security actions, trading frequency, and other relevant factors.

The insurer listens to the specific needs of the client and calculates the premium. The factors that influence it include market data, previous security issues, coverage restrictions, etc.

if an incident occurs that leads to the client losing funds, they notify the insurer by filing a claim. it’s necessary to offer as much evidence and documents as possible. The company analyzes all factors to verify the claim and pays out the agreed sum by the policy.

You will often find that there are different crypto insurance types. A single policy might refer only to potential theft or include all-around custody insurance.

Pros of Purchasing Crypto Insurance

From the perspective of a trader, there are multiple reasons why crypto insurance is a good thing. Here’s an overview of the benefits:

• Protection against fraud, insider and outsider threats. Phishing for digital wallet information is among the most common crypto scams. Cybercrime might also refer to hackers attacking a crypto exchange and stealing funds. This insurance type keeps you safe from these threats, providing peace of mind and investment protection.
• Legal protection and insurance. The good news is that the crypto market is becoming more regulated each year. If you take out an insurance policy, you know there are legal mechanisms that protect you if something goes sideways.
• Boosted industry attractiveness. The implementation of Bitcoin ETFs opened the crypto market to traditional investors. The industry is doing everything to increase its trustworthiness. Insurance policies are a way to attract potential investors with an extra layer of security.

Cons of Purchasing Crypto Insurance

Not everything is perfect, and there are many cautions to have when it comes to crypto insurance. The downsides include:

• High premium costs. It’s hard for the insurers to estimate the factors that affect the premium cost. Add the still unregulated market, which is another reason to increase the insurance price, and you get premiums that are far from tempting.
• Lack of industry-wide standards. Crypto insurers need more time to come up with clearer standards. Until that happens, there will be a lot of differences in offers and prices.
• Limited supply and coverage. Crypto insurance might not be available in all territories. Also, it often applies only to certain scenarios.

Due to these downsides, it’s still best to try and maintain the highest safety level when protecting your crypto. That includes carefully choosing how and where you store funds. You can check the list of top 10 hardware wallets of 2024 to discover the best options to keep your assets offline. It’s the safest way to ensure they are off the limits for hackers and other cyber threats.

Future of Crypto Insurance

The crypto market has been growing each year, increasing insurance requirements from holders, exchanges, and other entities. If the industry continues to develop, there’s no doubt that insurance will progress, too. At this point, it’s clear that this part of the industry is only at its beginning.

It’s important to note that FDIC — the US Federal Insurance Deposit Corporation — doesn’t cover crypto investments. The federal protection is only for savings and checking accounts up to $250,000.

If you come across a crypto insurance company, it will be a third party that doesn’t have harsh regulations to follow. That’s why investors should be careful when choosing. You can rely on existing feedback and user reviews, which could provide some pointers regarding the company’s trustworthiness.

The other option is to pick a centralized exchange that offers crypto insurance to its users. That could be the safest option until the digital insurance market develops and we have enough historical data to determine if a certain provider is reliable.

It seems the market is going in a positive direction, which is good news. As crypto attracts more users and capital, it also becomes more regulated. All that could lead to insurance becoming a standard and affordable option in the digital world. That would be great for investors, but until that happens, experts advise caution when dealing with crypto insurance providers.

Read Also: How To Keep Your Cryptocurrency Holdings Safe And Secure?