eCommerce Fraud Costs a Pretty Penny. Should You Insure Your Business Against It?
Recent data from Mastercard reveals that online sellers lose an estimated $48 billion each year due to fraudulent transactions.
That’s a lot of money, especially when you realize that may be a gross understatement. According to LexisNexis Risk Solutions, every dollar stolen by bad actors — whether a result of first-, second-, or third-party fraud — costs US retailers an estimated $4.61 in fees, lost merchandise, and other liabilities. All totaled, the losses can amount to 11% of the average eCommerce merchant’s annual revenue.
That being the case, you really can’t help but wonder whether it’s a good idea to take out some form of eCommerce fraud insurance policy to protect your business.
Recommended reading
- Account Takeover Protection: Best Practices for Businesses
- The Top 10 Fraud Detection Tools You Need to Have in 2025
- ECI Indicators: How to Understand 3DS Response Codes
- Stop Fraud Without Declines: An Interview With Bator Sutton
- Fraud Detection Machine Learning: a “Smart” Move for Retail
- Liveness Detection: A Guide to AI-Enhanced Verification
What is eCommerce Fraud Insurance?
- eCommerce Fraud Insurance
eCommerce fraud insurance is a specialized type of insurance policy that protects online sellers and payment service providers from financial losses caused by fraudulent credit or debit card transactions.
[noun]/ē • käm • ərs • frôd • in • SHo͝o • rəns/
An eCommerce fraud insurance policy typically pays out when you suffer losses due to unauthorized transactions or chargebacks, which may occur as a result of data breaches, identity theft, physical card theft, or other third-party attacks.
Depending on your specific eCommerce fraud insurance policy, you may be reimbursed for the revenue or inventory lost as a result of the fraud, along with any chargeback fees. You may also be eligible to receive compensation for any associated legal or operational costs incurred.
How eCommerce Fraud Insurance Works
Like any insurance policy, you’ll only be able to file a claim if a fraudulent event falls within the scope of coverage. For example, certain types of eCommerce fraud, like chargeback fraud or account takeover (ATO) fraud, may be covered. Other fraudulent events that may be more difficult to prove, like triangulation fraud, may be excluded or require add-on coverage.
But, I’m getting ahead of myself.
For now, suppose you experience a covered event. When you file a claim, you’ll be reimbursed for some or all of your fraud losses. How much you’ll receive, and whether you’ll be made whole, is highly context-specific. For example, if you experience fraud and incur a chargeback fee, you’ll probably be reimbursed for it. But, the labor costs associated with investigation and representment may not be covered.
Key Benefits for Merchants
eCommerce fraud insurance offers financial protection, allows for faster recovery from fraud attacks, and lets you refocus on growing your business, rather than worrying about fraud.
When you encounter chargebacks or other forms of fraud, an insurance policy can prevent these scams from rattling your top and bottom lines or from causing significant operational disruptions. Specific benefits include:
| Aspect | eCommerce Fraud Insurance | Traditional Business Insurance |
| Primary Coverage | Fraudulent transactions Chargebacks Identity theft losses Account takeover fraud | Property damage Bodily injury claims Product liability General liability |
| Coverage Triggers | Unauthorized transactions Friendly fraud chargebacks Data breach losses | Customer injuries Property damage Advertising injuries Professional errors |
| Documentation Required | Transaction records Delivery confirmations Customer communications Chargeback notices | Incident reports Medical records Repair estimates Witness statements |
| Preventable? | Yes, through fraud prevention tools | Partially (safety measures help) |
| ROI Considerations | Must weigh against fraud prevention software costs | Generally considered essential protection |
How to File an eCommerce Fraud Insurance Claim
To file an eCommerce fraud insurance claim, you must compile documentation related to the incident, then submit it to your provider. You then wait for your insurer to reimburse you, or file an appeal if your claim was denied.
Even if you pay your premium and meet your deductible, payouts for covered events probably aren’t automatic.
Every time you incur a loss, you’ll need to file a claim to show that you’re eligible for reimbursement. In practice, this means supplying your insurer with evidence that fraud occurred, and that you suffered losses as a direct result of the fraud.
While all claims processes are different, you can use these steps as a starting point:
You can expect to receive your reimbursement via check or ACH transfer. The timeframe for payout varies, but usually ranges from 30 to 90 days after filing.
How Much Does eCommerce Fraud Insurance Cost?
eCommerce fraud insurance pricing varies dramatically based on your risk profile. Most merchants can expect to pay anywhere from $100 to $1,000+ monthly, with premiums determined by several key factors.
I can’t tell you exactly how much you should expect to pay, because cost tends to vary based on a number of factors. For example:
Like most insurance policies, you’ll typically have to pay a monthly premium for coverage, regardless of whether you file a claim or not.
You may also have to meet a deductible, which is the amount you’ll have to pay out-of-pocket for any covered claims before your fraud insurance policy pays out at all. Deductible payments are usually assessed on a per-claim basis. Providers can also apply coverage limits and exclusions; what's not covered could end up costing you more than the premium itself.
For example, let’s say you’re a mid-size merchant processing $2 million in transactions annually. You might pay $400 monthly in premiums, with a $2,500 deductible. If you file two claims yearly, you’re looking at $9,800 in total costs.
You’ll need to look at the costs and weigh which option will give you a better return on investment: insurance, or enhanced fraud prevention. Remember that the cheapest policy isn't always the best value. A lower premium with extensive exclusions could leave you exposed when you need coverage most.
eCommerce Fraud Insurance Limitations & Exclusions
High-risk products or claims that exceed your policy’s lifetime coverage limit may be excluded under an fraud insurance policy. You may also void your coverage if you fail to pay your premiums, violate your contract, or act negligently.
Even if you opt for an extensive online fraud insurance policy, you shouldn’t expect to receive coverage against all forms of fraud. For example, you may jeopardize your coverage if you are negligent or fail to comply with your policy’s coverage terms. You could be denied coverage for an otherwise eligible claim if you do not provide proof of delivery or other forms of documentation to show that you fulfilled your responsibilities under the policy.
Losses resulting from an error on your part will probably be ineligible for coverage, too. These occurred as a result of faults on your end, rather than from third- or first-party fraud.
Your policy may also exclude high-risk products, services, or transactions from coverage. For example, transactions involving cannabis products, adult content, or credit repair services may not be eligible for fraud protection.
You’ll also need to pay attention to lifetime coverage limits. If you suffer an extensive cyberattack and face millions of dollars in losses, you may not be covered for the full extent of those losses. If you’re a large merchant and believe that you may be at risk of significant fraud losses, you may want to consider increasing your coverage limits or purchasing supplemental policies.
Selecting the Right eCommerce Fraud Insurance Policy
Before choosing an insurance policy, you should consider your risk factors, the level of coverage you want, and contract terms. You should also get at least three quotes from providers.
eCommerce fraud insurance is a highly individualized product, and there’s no one-size-fits-all policy. The “right” policy for you will depend on the size of your operation, the products or services you sell, your historical chargeback ratio, and your level of risk tolerance, among other factors.
Nonetheless, there are several things you should be on the lookout for if you’re in the market for an eCommerce fraud policy. Specifically:
Determine What Coverage You Need
Each policy will come with different premiums, deductibles, and lifetime coverage limits. Policies with lower premiums usually have higher deductibles and lower lifetime limits, while higher premium plans will come with lower deductibles and higher lifetime coverage limits. Think about it as a tradeoff between price risk: the more you pay upfront, the less you’ll pay out of pocket when fraud occurs.
Get Multiple Quotes
You’ll want to get at least three quotes from different vendors so you can really get a feel for what’s out there in the market. Unlike many products, most insurance carriers don’t price match. So, the more companies you reach out to, the more likely you are to land on a competitive quote.
Understand Your Policy’s Terms
Premiums, deductibles, and lifetime coverage limits don’t tell the whole story. You’ll also want to examine the fine print to see what’s specifically covered… and what isn’t covered. Don’t be fooled by a cheaper policy; while you could be getting a good deal, you could also risk under-insuring yourself compared to other options.
Questions to Ask Before Purchasing
Since you’re in the market for a specialty product like eCommerce fraud insurance, you probably can’t count on completing the entire process online. While this adds some friction to the buying process, it’s a good opportunity to connect with a live insurance agent who can answer your questions.
Before going through the entire quoting process, make sure to ask:
- What types of fraud are covered?
- What are the coverage limits?
- What documentation is required to file a claim?
- What is the typical timeline for claims processing and payout?
- Are there any exclusions or circumstances where claims would be denied?
- Does the policy require certain security measures to be in place?
- Do you get discounts or enhanced coverage for implementing advanced fraud prevention tools?
When you’re insuring against perils you can’t reasonably prevent, like fires, floods, or natural disasters, it’s great to be properly insured; there’s nothing else you can do, after all. But things are a little different when it comes to fraud, since it’s a risk you can mitigate through proper detection and prevention measures.
An Alternative to Insurance: Better Fraud Detection
Adequate insurance isn’t a bad thing, provided you’re not overspending on premiums without a measurable return on investment or overinsuring yourself against insignificant risks.
The issue, though, is that fraud insurance is ultimately a stop-gap measure. While it can prevent financial disruption if you ever experience significant losses, it’s a reactive solution that fails to address the root cause of the problem.
Ultimately, you’re probably better off investing in a multilayered fraud prevention strategy. By systematically mitigating fraud at account creation, checkout, and beyond, you can deter scams and avoid the costly premiums and deductibles that come with an eCommerce fraud insurance policy.
Curious to see how effective fraud prevention solutions can help you root out fraud? Reach out to the experts at Chargebacks911® for a no-obligation ROI analysis today.
FAQs
Do you need insurance for eCommerce?
You may want to carry some insurance for your eCommerce business, such as a general liability policy or a product liability policy. However, a cyber risk policy, fraud insurance policy, or chargeback insurance policy are optional.
How much does eCommerce insurance cost?
General liability insurance for an eCommerce business typically starts at about $40 per month, while eCommerce fraud insurance can range from $60 to $600 per month, depending on the size of your business.
Do I need an LLC for an eCommerce business?
No, an LLC isn’t required. If you want to avoid the hassles of paperwork, you can run an eCommerce business in a sole proprietorship, though you’ll need to keep in mind that you’ll be fully liable for all your business’ debts and obligations. In addition to an LLC, you can also run your eCommerce business as a partnership or C corporation.
What insurance do I need for an eCommerce business?
When running an eCommerce business, typically want a general liability policy and potentially a product liability policy. You can also consider an eCommerce fraud insurance policy, a chargeback policy, an errors and omissions policy, or a cyber risk policy, but those aren’t required.
