What is Identity Theft Insurance? What does it cover? How can I get it? Do I need it? And how much does it cost?
Your questions regarding identity theft insurance are answered in this post.
According to a recent report from the Justice Department, an estimated 3.6 million households have been victims of identity theft or fraud. This number varies based on the FTC and other governmental organizations classification of this type of crime as well as the numbers reported in the United States or overseas (including US citizens traveling overseas). The majority of reported cases involve a stolen credit card number.
Critics of identity theft insurance claim that it is “not worth the money,” (Consumer Reports magazine, as reported on MSNBC.com). Critics of identity theft insurance state many concerns, chief among them the fact that in most cases it does not cover the following: reimbursement for money that is stolen or for identity theft expenses that occurred because of who the “thief” was. In the case of a family member, most insurance does not pay benefits. The National Association of Insurance Commissioners cautions consumers that insurance “cannot protect you from becoming a victim of identity theft and does not cover direct monetary losses incurred as a result of identity theft.” Another criticism includes that the purchase of identity theft insurance may create a false sense of security.
What does identity theft insurance cover? Just like the many varieties of health, home, life, and car insurance; identity theft insurance comes in many forms. In most cases, but not all, identity theft insurance will cover lost wages due to time taken off work to correct or repair damages due to identity theft. However, this coverage often carries a limit, frequently in the approximate amount of $2,000.00. According to The Privacy Rights Clearinghouse, it is estimated that victims spend on the average the equivalent of 22 work days trying to correct the damage from identity theft, so this may or may not be of benefit to you, depending on what your hourly/daily wage is.
Identity theft insurance also usually pays attorney fees (which may or may not be necessary); mailing, postage, supplies, copy costs, and phone bill charges (for example long distance) associated with providing creditors and lenders as well as credit agencies with the proof necessary to correct your credit and repair your financial situation.
How much does identity theft insurance cost? It depends on both the coverage and how you obtain your insurance. Identity theft insurance can range from free to approximately $40.00 a year depending on how you have purchased it. There are three main ways to obtain identity theft insurance: within your homeowner’s insurance policy; as a service of your credit card company or lender; and by purchasing it as an individual. To determine if you have identity theft insurance through your homeowner’s policy, contact your insurance company and request a copy of the provision. (You may need to purchase it as a “rider’ or extra to your existing policy much like purchasing flood or earthquake insurance – but not as expensive.)
You may be covered through your credit lender; such as the credit card company, mortgage or other loan provider. This coverage may be free, or it may require a yearly service fee through the lender. For example, American Express provides some forms of identity theft insurance to its card holders free of charge. However, consumers need to be sure to check the provisions of this type of coverage. On some credit cards, the coverage only covers that particular credit card company and damages which occur from the loss or theft of that one particular card. What if all the others are stolen and used also? If you are going to rely on this type of “free” coverage you need to make certain that the coverage is available on all your credit cards and lending agencies or that you may purchase additional coverage to protect all your financial information.
Consumers may also purchase a “stand alone” policy through most of the major insurance providers such as Nationwide, State Farm, Farmers Group, etc. There are also many other options available that allow consumers the option to purchase the policy as a stand alone. However, if doing so, you want to make sure that the company is reputable. In some cases, these are the very types of people you should be protecting your information from. Lastly, some providers of this type of insurance provide it monthly, so be sure to multiply the monthly cost by 12 to determine the yearly costs. If you purchase this type of coverage it is important to make sure to keep it current.
One final consideration for identity theft insurance is the level of deductibles. They generally range from $100 to $250, but some may be as high as $1,000. According to the Federal Trade Commission, the average victim spends less than $1,500 to recover from identity theft so it important to do the math and determine if your insurance premium plus deductible is a good value as well as provides the type of protection that you need for your credit and identity.
Finding out about damages to your identity and credit is just the beginning. After that begins the time consuming and often frustrating process of repairing the damage and correcting the mistakes. While nothing can protect you completely, even following basic rules like keeping your personal and credit information safe and shredding all documents, it is good to know that you can also purchase (and in some cases get for free) that added bonus of assistance in the form of coverage and monetary support during one of the most difficult financial times in your life.