Custody Insurance: Terms and What They Exclude

Typically covered

• Theft of assets from cold storage through physical compromise
• Dishonest acts by employees of the custodian
• Damage or destruction of key material in storage

Typically excluded

• Compromise of the client’s own credentials
• Losses arising from protocol or smart contract failure
• Market movement
• Insolvency of the custodian
• Assets held outside the arrangement the policy specifies, such as operational hot wallets

The first exclusion is the most significant for an individual client, because it covers the most likely way a client actually loses assets. The definitions here match usage at a crypto custody provider with segregated client assets and may differ elsewhere.

Limit types

Type	Meaning
Per incident	Applies to each event separately
Aggregate annual	Total across all events in a year; an earlier claim reduces what remains
Primary	First layer of cover
Excess	Sits above another policy, which must be exhausted first

Aggregate annual is more common and weaker. Ask which applies.

The ratio that matters

Insurance limit divided by total assets under custody.

A hundred million of cover across two billion held is five percent. That is arithmetic rather than criticism.

Providers volunteer the limit and rarely the denominator. A provider unwilling to give total assets under custody has told you the ratio is unflattering. Fund administration adds its own vocabulary, which a provider serving funds and family offices documents.

What to request

A certificate or broker letter naming the insurer, the limit, whether it is per incident or aggregate, and the exclusions.

A summary on a website is marketing. The certificate is evidence.

Where insurance sits in the hierarchy

Cross-check any provider you are considering against the definitions a regulated European crypto platform publishes.

Protection	Addresses
Regulatory segregation with assurance	Provider insolvency
Operational controls	Unauthorised movement
Insurance	Theft and employee dishonesty

Segregation is the primary protection. Insurance is a backstop for a narrower set of events.

Comparing providers on insurance before confirming segregation is comparing the secondary protection first.