What is Crypto Insurance and How Does It Work?
What is Crypto Insurance?
Insurance is the process of purchasing a financial warranty or coverage in advance to deal with an emergency in the future. There are various types of insurance options available for users at the moment.
However, since cryptocurrencies and blockchains are decentralized entities; some investors have raised the question of lack of insurance options for traders in this sector.
At present, cryptocurrency insurance options are limited. However, there are some solutions available for investors who are looking to safeguard their investments. A crypto insurance policy can protect the investors against associated risks involved in trading digital assets such as custodial services, trading cryptocurrencies and other types of digital currencies.
Crypto insurance services are available for both retail and commercial sectors. The main reason that a good amount of commercial entities have refrained from investing in crypto projects is the absence of insurance options.
However, new insurance options grant investors protection against various issues such as technical errors, administrative faults, hacks, scams and theft, etc. Crypto insurance also brings legal protection for investors.
How does Crypto Insurance Work?
Crypto insurance is based on creating a detailed risk profile for individual investment options and digital currency projects. In this manner, a single crypto insurance option is able to grant tailor-made protection for investors through underwriting options that are suited to their individual needs.
Crypto insurance agents access the unique risks that are associated with a particular cryptocurrency project.
The risk profile is based on the risk associated with a particular digital asset and the intended user or targeted investors. The first stage of cryptocurrency insurance is based on insurance mechanics.
In this manner, the coverage program allows investors to retain the value of digital asset investments based on their trading activities. At the same time, insurance policy also accounts for regulatory compliance.
In the next phase, the policy buyers are provided detailed information about premiums and other terms of the policy and the extent of coverage. These conditions inform the investors about how they can effectively manage their risks such as breaches, market conditions, and limitation of recoverable funds, and security solutions.
Once the policy makers and the buyers are on the same page, it is time for underwriting process to complete the due diligence to confirm the new insurance policy.
In the final stage, the policy holders are able to file a claim in the event of loss that is included in the coverage policy. The policy holders are under the legal obligation to provide all legal documents and proof that their losses are covered under the terms of the insurance policy.
After purchasing the insurance policy the investors also have to submit all premium fees as part of the policy agreement and avoid lapse of the policy.
Types of Crypto Insurance Policies
Crypto Theft Insurance
This type of insurance policy protects the investors against risk of theft of their cryptocurrency holdings. The theft that is covered in most crypto insurance policies is inclusive of events such as phishing scams, unauthorized access, hacking incidents, and additional types of unwarranted breaches.
Crypto Custody Insurance
Crypto custodial insurance protects the investors in the event if their custodial services providers end up losing their funds. A third-party custodial services provider may act in a malicious manner and run away with investor funds. In other cases, custodians may not be able to continue operations on account of internal or external business issues and have to go out of business.
Cybersecurity Crypto Insurance
Cryptocurrencies are always susceptible to the risk of cyber hacks and attacks. Therefore, investors can add an additional layer of protection by purchasing a policy that covers them from suffering from losses due to security breaches.
Another advantage of purchasing a cybersecurity policy that experts conduct a technical audit of a blockchain service that spells into better security for the investors.
Crypto Exchange and Custodian Insurance
This type of policy protects investors from the bankruptcy potential of a crypto trading platforms and/or custodial services providers. It also grants protection against technical issues or failure to access funds on account of financial or administrative challenges.
Conclusion
Crypto insurance policies are a great way to add an extra layer of protection against potential losses. However, investors have to pay in advance to acquire this safeguard and should read the terms of the policy in an attentive manner. There are some policies that return the total premium amount in the event. If the investors do not have to redeem the policy during the contractual period.
