I woke up to a notification that my 2FA had been disabled. By the time I logged into my exchange account, $45,000 in Bitcoin and Solana was gone. I called customer support, and they pasted a generic “transactions are irreversible” script. Then I called my homeowners insurance agent, hoping my “Cyber Protection” rider would save me, only to hear: “We don’t cover currency held by third-party financial institutions.”
Key Takeaways
- FDIC Confusion: Your USD cash on Coinbase might be FDIC insured (pass-through), but your crypto is not. If the exchange gets hacked or goes bankrupt, the government isn’t bailing you out.
- The “Money” Sub-Limit: Standard home policies classify crypto as “money/currency.” The limit for theft of money is typically $200. That’s it.
- Exchange Guarantees are Discretionary: Programs like the “Binance SAFU” fund or “Coinbase One” protection are internal warranties, not regulated insurance products. They can deny you at will.
- Custodial Risk: If you don’t hold the keys, you don’t hold the insurance rights. The exchange holds the policy, and you are just an unsecured creditor.
The “Why” (The Trap)
The trap is the “Financial Institution Exclusion.”
Insurers view a crypto exchange like a bank. If a bank is robbed, the bank’s insurance pays, not the depositor’s. But unlike banks, crypto exchanges often have inadequate insurance relative to their assets under management (AUM).
Furthermore, your policy’s “Cyber Event” clause usually covers data recovery and identity restoration, not the financial value of the stolen asset.
The Investigation (I Called Them)
I investigated the protection layers of the big exchanges and external insurers in 2026.
Coinbase (Coinbase One)
- The Offer: For a monthly subscription, they offer up to $1M in “Account Protection.”
- My Analysis: Read the T&Cs. It covers unauthorized access (someone hacks your login). It does not cover you if you get tricked into sending money (scams) or if the broader exchange suffers a systemic insolvency. It is a warranty, not insurance.
Breach Insurance (DeFi/Crypto Specific)
- The Offer: They act as a regulated insurer specifically for crypto wallets.
- My Analysis: They offer coverage for exchange hacks if you connect your exchange account to their monitoring system. It’s one of the few ways to get regulated protection for custodial assets.
Lloyd’s of London (Syndicates)
- The Offer: Theft coverage for high-net-worth individuals holding >$1M.
- My Analysis: Expensive (2-3% premiums). They require you to use specific “Qualified Custodians” (like Anchorage Digital), not just a retail Binance account.
Comparison Table
| Feature | Standard Homeowners | Exchange “Protection” (e.g., Coinbase One) | Specialized Crypto Insurance (e.g., Breach/Evertas) |
| Coverage Trigger | Theft from Home (Cold Wallet) | Account Takeover (Hack) | Exchange Hack or Wallet Theft |
| Limit | ~$200 (Money Limit) | ~$1M (Subscription based) | Policy Limit (Flexible) |
| Covers Insolvency? | No | No | Rare (Specific riders) |
| Cost | Included | ~$30/month | 1-2.5% of asset value |
Step-by-Step Action Plan
- Check the “User Agreement”: Go to your exchange’s footer. Look for “Insurance.” If it says “Digital assets are not insured by the FDIC,” you are self-insuring.
- Move to Self-Custody: The only way to insure crypto effectively on your own terms is to hold it in a cold wallet (Ledger/Trezor). Insurance options for cold storage are better than custodial accounts.
- Enable Whitelisting: On your exchange, turn on “Address Whitelisting” and set a 48-hour withdrawal delay. This stops a hacker from draining the account instantly, negating the need for a claim.
- [IMAGE: Screenshot of security settings enabling ‘Address Whitelisting’ and ’48h Delay’]
- Subscribe to “Account Protection”: If you must keep funds on an exchange, pay the $30/mo for their premium protection tier. It’s the only recourse you have.
FAQ
Does the exchange’s insurance cover me?
Usually, no. Their insurance covers their corporate hot wallet. If your individual account is breached due to a weak password, their corporate policy doesn’t pay.
Is USDC insured?
The USD reserves held by Circle are in regulated banks, but the USDC token in your wallet is not insured by the government.
What if the exchange goes bankrupt (like FTX)?
You are an unsecured creditor. Insurance generally excludes “Financial Insolvency.” You will wait years for pennies on the dollar.