Data loss is a problem for a business every two seconds and projected to cost businesses $265 billion by 2031 so it’s no wonder distributors are offering consumers a new kind of warranty: the cybersecurity warranty. Created to help mitigate the financial risks associated with cyberattacks and breaches, these warranties are typically a complement to cybersecurity insurance and fill in the gaps where insurance does not provide protection.

However they’re not all created in the same way. There are many that have strict terms and conditions which could lead to companies paying a substantial amount for information retrieval in the event of a cyber invasion. The stipulations could include:

Incorporating such a warranty into a technology M&A deal is an excellent method of ensuring that the buyer is adequately protected against security threats and that the vendor takes steps to stop such attacks from occurring in the future. In addition to the usual warranties and representations that are included in an asset purchase or stock purchase agreement, these warranties can be made to address privacy as well as data security and other issues relevant to the transaction being considered.

A typical warranty will cover the cost of repair and replace equipment, as well as IT labor, forensics and compensation for individuals affected by the breach. Some also cover the cost of legal expenses resulting from lawsuits. A more comprehensive plan may also pay for lost revenue, the cost of reprogramming the software and the cost to restore reputational damage resulting from an incident of security.

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