What Is A Retention? (Cyber Liability Insurance 101)

When reviewing a cyber liability insurance policy, one key term you'll come across is “retention.” While it might sound technical, understanding what retention means—and how it affects your coverage and costs—is essential for any business looking to protect against cyber threats.

What Is Retention in Cyber Insurance?

In simple terms, retention is the amount your business is responsible for paying out of pocket before the insurance coverage kicks in. It functions similarly to a deductible in other types of insurance, but it’s referred to as “retention” in the cyber liability space.

For example, if your policy has a $25,000 retention and your business suffers a data breach that costs $100,000 to resolve, you would pay the first $25,000 and your insurance would cover the remaining $75,000.

Why Retention Matters

Retention plays a crucial role in the risk-sharing agreement between you and your insurance company. Here's why it’s important:

Lower retention = higher premiums. The less you're willing to pay out of pocket, the more your insurer charges you in premium.
Higher retention = lower premiums. If you're confident in your cybersecurity defenses and financial stability, taking on more risk yourself can significantly lower your costs.

Choosing the Right Retention Amount

Selecting the right retention isn’t just about picking a number—it’s about aligning with your business’s financial situation and cyber risk profile. Here are a few things to consider:

Cyber risk exposure: How likely is a cyber event in your industry?
Cash reserves: Can you comfortably cover a $25,000 or $50,000 out-of-pocket expense if a breach happens?
Overall risk management strategy: How does cyber insurance fit with your internal IT investments, incident response plan, and business continuity plan?

Think of retention as a financial lever in your policy. Too low, and you’re overpaying for peace of mind. Too high, and one cyber event could create serious cash flow issues.

Final Thoughts

Cyber incidents are becoming more frequent and more costly. Choosing the right cyber liability policy—with the right retention—is an important decision for every business. It’s not just about coverage; it’s about making sure your insurance fits into a broader strategy that protects your operations, your data, and your reputation.

If you're unsure what retention amount makes sense for your business, consult with a commercial insurance professional who understands the cyber risk landscape in your industry.

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