According to the Federal Trade Commission, identity theft affected around 1.1 million Americans in 2022, with some research indicating that figure could be higher. That is why you may want to consider purchasing identity theft insurance.
What is identity theft insurance?
Identity theft occurs when someone obtains your personal information and impersonates you, usually for financial benefit. Identity theft insurance reimburses you for the money you spent to recover your identity, but it does not often cover money lost during the theft.
Many major insurance companies provide identity theft coverage as an add-on to homeowners, renters, or other policies. It typically costs an additional $20 to $60 each year, while some insurance carriers provide more extensive coverage at a higher cost.
What does identity theft insurance cover?
An identity theft insurance policy may reimburse you for the following expenses:
- Copies of your credit reports.
- Notary fees.
- Banking fees.
- Lost wages while restoring your identity.
- Childcare costs.
- Legal expenses.
More extensive identity theft insurance coverage may include additional services such as:
Credit or identity monitoring. These services monitor for abnormal activity on your credit reports or in databases that may contain your other personal information. Although monitoring services cannot prevent fraud, they can alert you to problems early on, allowing you to take appropriate action.
Identity restoration. Many insurers can connect you with fraud professionals who can assist you in communicating with creditors, setting fraud alarms on your accounts, preparing affidavits, and replacing lost papers.
Personal cyber coverage. This coverage can help you avoid or recover from cyberattacks. For example, you may be able to collaborate with an expert to recover lost data or strengthen your home Wi-Fi network. (Some insurers provide cyber coverage separate from identity theft coverage.)
Reimbursement for stolen money. Although most identity theft plans only cover expenditures related to restoring your identity, others will reimburse you for money stolen from your accounts as a result of fraud.
Read your policy carefully or discuss it with an agent to ensure you understand what is and is not covered. Inquire about the coverage limits and whether a deductible will apply. (A deductible is the amount of an insurance claim you must pay yourself.)
Is identity theft insurance worth it?
Identity theft insurance may be worthwhile, depending on your risk tolerance and the amount of effort you are willing to perform if your identity is stolen. Consider the following factors.
Check for existing protection
Before purchasing identity theft insurance, be sure you have other forms of identity security. For example, if you were involved in a significant data breach, the organization that failed to protect your information may offer free credit monitoring or restoration services for a set amount of time.
You may also have identity theft insurance or monitoring through your credit card, work, or homeowners or renters insurance.
Consider do-it-yourself monitoring and recovery
Insurance policies and monitoring services cannot prevent identity theft; they can only notify you of the problem and assist you in resolving it. You might be able to do some of the same processes on your own.
One method for safeguarding your data is to freeze your credit, which stops anyone from accessing the information in your credit files.
If you do not want to pay for monitoring services, you can check your credit reports and financial documents on a regular basis, use secure passwords, and take other precautions to avoid identity theft. While identity theft insurance can provide access to specialists to assist you with fraud-related issues, the federal government provides free recovery plans and information at identitytheft.gov.Â
Evaluate the risk
Consider how much you could lose if someone steals your identity. Banks and credit card issuers rarely hold individuals liable for fraudulent transactions or withdrawals – as long as the matter is reported immediately. According to a 2023 research conducted by the United States Department of Justice (based on data from 2021), the majority of victims of identity theft resolved their financial and credit difficulties in a week or less. Many were able to accomplish this in a single day.
However, the same study discovered that approximately 10% of victims spent a month or more attempting to reclaim their identities. Aside from stealing money from your account, thieves could use your personal information to:
- Create bogus insurance policies.
- Open illegitimate credit cards.
- Obtain an unlawful loan.
- Rent an apartment.
- Establish utility accounts.
- Get a job.
- File taxes and steal your refund.
- Expose your personal life.
You may wind up with a poorer credit score, inability to qualify for loans, or difficulty getting work. These long-term implications, which can be costly to address, make many people wish they could recuperate expenditures and seek expert counsel. Depending on the coverage, identity theft insurance may provide both.
Where to buy identity theft insurance
Many major insurers provide identity theft coverage as an add-on to homeowner or renters insurance policy. Some, like Chubb, may provide a limited level of coverage for free.
Your company may also provide coverage and access to legal advice to help you put the pieces back together.
Finally, you can look at direct-to-consumer companies like LifeLock and IDShield.
