Identity Theft Insurance
Identity theft insurance (sometimes called identity theft protection) is part of a lot of credit monitoring services so we thought it would be a good idea to look at what identity theft insurance is, what it covers, how much a standard policy costs and if it’s worth signing up for.
What Is Identity Theft Insurance?
In 2011 the FTC estimated that there were 11.6 million victims of identity theft (up 13% from the previous year, no figures from 2012 or 2013 are available as of it). Most of these statistics are made up of stolen credit cards rather than the complete identity theft most people think of; fake drivers licenses, new credit cards under the stolen name, etc etc. Identity theft insurance is often miss sold, as consumers expect it to cover funds stolen, as well as expenses that result as part of the theft. In actuality it only covers expenses.
What Does it Cover?
Identity protection will reimburse policy holders for expenses incurred in restoring their identity. For example:
- Phone bills
- Lost wages (usually only up to a maximum of four weeks)
- Notary and certified mailing costs
- Obtaining credit reports (this can be done for free through http://www.annualcreditreport.com)
These policies will not reimburse policy holders for funds/items that are stolen as a result of identity theft. For example, if a thief manages to get access to a policy holders bank account and drains it of funds, most policies will not reimburse them for this loss. They will only reimburse them for the money they spend trying to restore their identity so it can’t happen again.
How Much Does A Standard Policy Cost?
This type of insurance is usually available as an option extra under homeowners or renters insurance at about $25-$50 per year. Standalone plans are often much more expensive costing between $75 and $150 per year, the major difference is that some standalone plans will include reimbursement for funds stolen.
What Companies Offer Identity Theft Insurance?
A number of companies offer this type of insurance. Below is a list of some of the more well known companies:
- Credit Sesame: Free, coverage up to $50,000. Also access to a live representative to help you restore your identity.
- Statefarm – $25 per year add on to homeowners or renters insurance
- Zanderins – $75 per year, stand a lone insurance. Endorsed by Dave Ramsay and includes cover for “Stolen Funds caused by an unauthorized electronic funds transfer”
- The majority of credit monitoring services offer it from $8.95 per month.
Is it Worth Having?
In our opinion identity theft insurance isn’t worth having, if it covered funds stolen then it would be a different story but as it only covers expenses incurred in restoring ones identity it’s simply not worth the cost. The FTC states that the average victim of identity theft spends less than $1,500 to recover their identity. Most policies also have a deductible of $100-$250, this along with the yearly fee makes the difference between having insurance and not having it fairly minimal.
Most credit cards also come with a card benefit that involves identity protection. For example, American Express offers a service that is available to all card holders that helps them recover their identity if they become a victim of ID theft.
Consumers are also very rarely liable for money spent fraudulently, assuming that they can prove identity theft has taken place.
The best way for individuals to avoid becoming victims of theft is to be proactive and ensure that people can’t steal their identity in the first place. Here are simple things everybody can do to reduce their chances of having their identity stolen:
- Shred all documents that contain personal information before putting them in the bin
- Regularly check your credit reports for anything suspicious, dispute incorrect/incomplete/inaccurate items
- Add a fraud alert if you suspect you’ve become a victim of identity theft
- Add a credit/freeze to all three credit bureaus to limit who can pull their credit report