Do I need identity theft insurance?

24 May
Identity Theft Protection

Identity thieves managed to steal roughly $16.8 billion and almost 30 percent of U.S. consumers were notified of a data breach.

A recent report from Javelin Strategy & Research found that in 2017 there were 16.7 million victims of identity fraud. Identity thieves managed to steal roughly $16.8 billion and almost 30 percent of U.S. consumers were notified of a data breach.

Identity theft can wreak havoc on your credit rating and finances. It can take years and countless hours to restore your credit and clear your name once you have been the victim of identity theft.

Identity theft insurance can help cover some of the costs associated with identity theft. Here is everything you need to know about this type of insurance.

What is Identity Theft?

Identity theft occurs when your personal information such as a social security number, bank account, or credit card numbers are stolen and used to impersonate you in order to steal.

In almost all cases the end goal of an identity theft is money. Identity theft thieves will typically:

  • Use stolen credit card numbers to purchase items or withdrawal cash
  • Steal money from bank accounts
  • Open unauthorized credit cards in order to purchase items
  • Take out unauthorized bank loans
  • Take out an insurance policy
  • Rent or buy a home

Once an identity thief has obtained credit cards or loans they purchase items and never pay the bills or repay the loan and these defaults (and the resulting damage to your credit rating) become your problem.

Getting these defaults and fraudulent charges removed from your credit report can be very time consuming and expensive which is where credit identity insurance steps up.

What does identity theft insurance cover?

Recovering from identity theft can be a long and expensive process and identity theft insurance can help cover some of those costs. Identity theft can cause serious damage to your credit rating, which may require a lot of time and professional help to resolve and expenses can quickly add up.

It should be noted that identity theft insurance will not cover any direct financial losses that you incur due to the theft of your identity, it will only reimburse the expenses that happen after the theft.

In most cases, once you report a stolen credit card or fraudulent activity on your account you should only be responsible for a certain amount of the phony charges. It is also possible that your homeowners insurance or renters insurance will provide some help in regards to identity theft protection but coverage is usually limited and is nowhere near as extensive as the coverage provided by a identity theft policy.

While coverage will vary by insurance company, in most cases the following expenses related to restoring your credit should be covered:

  • Copies of credit reports
  • Long-distance phone calls
  • Notary fees
  • Lost wages
  • Mailing of documents
  • Legal fees
  • Child care costs
  • Credit monitoring services
  • Cost of a consumer fraud specialist
  • Replacement of government issued identifications
  • Resolution services to help reclaim identity and your restore credit
  • Reimbursement of attorney’s fees
  • Reimbursement of administrative fees

Where to Get Identity Theft Insurance

If you have decided to add identity theft coverage to your insurance portfolio there are usually three options available to you:

  • Homeowners or Renters: Many homeowner and renters policies do offer some identity theft coverage but it is often limited. Check your homeowners insurance policy for details on your coverage.
  • ID Theft Rider: Most insurance companies will offer a rider to your homeowners or renters insurance policy, which adds identity theft insurance to your policy. Coverage limits will vary by insurer but $10,000 up to $1 million are fairly common. In many cases this coverage will also come with a deductible so make sure you fully understand the policy.
  • Standalone Policy: Many insurance companies also sell identity theft insurance as a standalone product. Check coverage levels, deductibles and any exclusions before purchasing a policy.

The cost of identity theft insurance will vary but expect to pay between $25 and $75 a year regardless of whether it is a standalone policy or a rider. In addition to an identity theft insurance policy you can also look at identity theft protection services which will monitor for suspicious activities and even dark web monitoring to help keep your information safe.

Is Identity Theft Insurance Worth It?

When it comes to identity theft insurance it is a personal decision and there is no right or wrong answer. It does provide peace of mind for a relatively small cost but in many cases your bank and credit card company will help resolve many issues related to identity fraud.

While one stolen card will usually not require the benefits of identity theft insurance if you experience a major theft of your identity it will absolutely be worth the expense. The problem is that you never know if you will have a need to use this type of coverage.

If you decide to purchase a policy or rider be sure that you understand exactly what the policy covers. Consider these factors:

  • Legal Fees: While many policies do cover legal fees, others may exclude these expenses. In a major identity theft case legal fees can add up so always look for a policy that helps cover these costs.
  • Deductible: Many policies come with a deductible that can range between $250 and $500 or higher. Look for a policy with a low deductible, as you will have to cover this amount before coverage kicks in.
  • Lost Wages: Look for a policy that covers lost wages as you may end up taking time off of work to deal with restoring your credit. Be sure you understand the details of the policy and how you will be reimbursed for lost wages.

A Few Tips to Help Avoid Identity Theft

Here are a few tips to help you avoid becoming a victim of identity theft:

  • Carry only the absolute necessary information in your wallet or purse. Avoid carrying extra credit cards, a social security card or passport.
  • Avoid throwing credit card or ATM receipts in public trashcans. Take them home and shred them.
  • Never give out personal information on the phone, on the Internet or through the mail.
  • Be careful when shopping online and only use secure sites that have been authenticated.
  • Make sure that your computer security software is always up to date. Use firewall, anti-virus and anti spyware programs on your computer and install all updates.
  • Monitor your accounts. Review your credit card and bank statements looking for suspicious activity. Immediately notify your credit card company or bank if you see something that doesn’t look right.
  • Review your credit report at least once a year. Look for any suspicious activity and notify the credit reporting agency immediately if you find something suspicious.

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