Identity theft occurs when an individual steals your personal and financial information and uses it to make purchases or transactions under your name. No one is completely safe from it, and unfortunately, it is a rising white collar crime in America, with almost 14 million cases reported every year.
If your identity is stolen, your assets could be completely drained and your reputation tarnished. The damage can be extensive and very costly. Repairing your identity can be a long, arduous, and expensive process.
Identity theft insurance can help you mitigate these risks. But is it a worthwhile investment?
What Does Identity Theft Insurance Cover?
Identity theft insurance differs from other insurance policies, as it does not cover the losses that resulting from the insured event the way other policies do. For one thing, it won't reimburse you for any lost assets. Instead, it functions more like expense reimbursement, covering specified expenses you incur in the process of restoring your identity, such as purchasing credit reports, lost wages, phone fees, legal fees, and notary and certified mailing expenses. Coverage usually ranges from $10,000 to $1,000,000.
Many policies also offer personal support and help to fix the damage to your credit history and financial records. Some might also provide such services as credit alerts and monitoring of your credit and financial accounts.
Pros and Cons of Identity Theft Insurance
As you face the stress and frustration of dealing with the aftermath of having your identity stolen, the expert guidance offered by the insurance company to help you recover your identity may prove useful. Your insurer can help by:
- Putting you in contact with fraud specialists so that you can restore your financial history to its original condition more quickly
- Reimbursing qualified expenses, which eases the financial burden of re-establishing your reputation
- Providing monitoring services that can help you find out that your information has been stolen, which could help reduce the extent of the losses and the damage to your name
Buying identity theft insurance does not reduce the likelihood that you will become a victim of identity theft (for advice on that, see How to Protect Against Identity Theft). And while it does cover some necessary expenses, many policies have a deductible ranging from $100 to $500. Finally, since it won't refund you for any lost money or assets, you could still be left with substantial uncompensated losses despite paying a premium.
Is Identity Theft Insurance Worth the Price?
Whether this kind of insurance is worth it will ultimately depend on your financial situation and personal preferences. Guarding your identity without paying for any services means constant vigilance on your part. Whether you care to invest that much time or not depends on you.
If you don't want to purchase full-blown identity theft insurance or do all the legwork yourself, there is a third way. You could, instead, purchase a less costly credit monitoring service. This would allow you to regularly do a quick review of your account for any red flags in your financial records. Doing this might make identity theft insurance unnecessary.
There are also other identity protection methods to consider, such as having your credit card billing statements mailed to a post office box in a different zip code from your principal residence. As this number is often required for large purchases, having one different from your home address adds a level of protection against others using your credit cards.
Because it doesn't cover any of your losses, identity theft insurance can seem like a rip-off. However, the other services and coverage it offers can make it a worthwhile option. Whether it's right for you though depends on your particular situation and preferences.
If you do decide to purchase a policy, make sure to read the fine print so you understand the exact services offered, since some companies may limit the amount to support they offer, require a deductible, or exclude certain expenses.