Data loss is expected to cost businesses $265 billion by 2031. It's no surprise that more distributors are offering buyers the latest type of warranty called the cybersecurity warranty. These warranties are designed to lower the financial risk of cyberattacks and they're often a complement to insurance. They fill in the gaps that insurance doesn't cover.

These warranties are not all the same. Certain warranties have strict conditions that can cost companies considerable amount of money to recover information in the event a cyber attack occurs. These may include:

Incorporating this type of warranty into an M&A deal can be an excellent way to ensure that the buyer has adequate protections against security threats and that the vendor will take steps to prevent attacks like this from happening in the near future. In addition to the standard representations and warranties in an asset purchase or stock purchase agreement, these new warranties can be negotiated to address privacy as well as data security and other relevant issues specific to the transaction at hand.

A typical warranty will cover the cost to repair or replace hardware, the cost of IT labor, forensics and the compensation of those affected by a breach. Certain warranties also cover legal costs that could arise from lawsuits. A more comprehensive version might also cover lost revenue and the cost of reprogramming the software, and the cost to repair reputational damage resulting from an incident involving security.


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