Why Identity Theft Insurance May Not Be Worth the Cost | CreditShout

Why Identity Theft Insurance May Not Be Worth the Cost

Why Identity Theft Insurance May Not Be Worth the Cost


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Identity theft is on the rise. According to the Bureau of Justice Statistics, around 7% of people over the age of 16 were the victims of identity theft in 2014 alone. It is estimated that every American will eventually become the victim of identity theft. And many people wonder if identity theft insurance provides a viable solution. So, in this article, we will examine if identity theft insurance is worth the cost.

What Does Identity Theft Insurance Cover?

Identity theft insurance is a bit misleading. While the term “insurance” implies you will be reimbursed for funds stolen as a result of identity theft, policies don’t work the same as traditional insurance policies. Instead, think of identity theft coverage as providing credit monitoring services and an expense reimbursement program.

Identity theft insurance does not pay the cost of any fraudulent transactions. Instead, it helps you cover the costs you incur fixing the damage to your identity. This means that these policies cover some expenses like certified mailing costs, notary costs, phone bills, lost wages, and sometimes attorney fees that are accrued while repairing your credit.

Some policies will also give you a case manager who will help you fix your credit and the mess left behind. For example, identity theft insurance from Liberty Mutual includes help from a financial counselor who will help you contact creditors, notify credit bureaus, and order credit reports.

So What About the Fraudulent Bills Run Up in My Name?

The good news is that you will not be responsible for fraudulent bills run up in your name. The bad news is that in some cases you may spend tens of hours and hundreds of dollars to dispute these charges.

Who Offers Identity Theft Insurance?

Identity theft insurance is now big business with policies sold through insurance companies, credit card issuers, credit unions, credit bureaus, and ID theft protection companies. In many cases, the insurance is included in an existing auto, homeowner’s, or renter’s insurance policy. Some companies offer identity theft protection as an endorsement for an existing policy while some sell identity theft protection as a stand-alone policy.

If you already have an homeowner’s, automobile, or renter’s, insurance policy, it’s worth checking if your policy already includes identity theft protection. I was surprised to find it was already covered in my policy.

The cost of adding identity theft insurance to an existing policy is usually $25 and $60 per year, according to the National Association of Insurance Commissioners. The cost is higher if the policy is purchased separately.

Before you add this service to an existing insurance policy, it may be worthwhile to make sure you know if it comes with any monitoring. The identity protection plans you see heavily advertised usually include the following monitoring services:

  • Daily 3-Bureau Credit Monitoring
  • Continuously monitor your personal information to detect illegal trading and selling
  • Comprehensive public records monitoring including criminal, court and sex offender records
  • Instant notification when your personal information is being misused

If that is the service you are looking for, you might not be getting that with an add-on to your homeowner’s insurance plan. Instead, you may just be getting “restoration services” that will help you complete required paper work after a breach happens.

Is Identity Theft Insurance Worth It?

While the idea of having your out-of-pocket expenses reimbursed may be appealing, the truth is repairing your credit after identity theft usually doesn’t cost anything, except your time.

What good credit protection services do offer you are monitoring of your credit report, other public records and the dark web to sniff out suspicious activity early. As and added bonus, you get regular updates on your credit score and credit report.

If your biggest concern is news of the epic hack at Yahoo or the fact that even the White House cannot keep sensitive information secret, you may be interested in identity monitoring services. And this is the best part of credit monitoring services: to identify any suspicious activity early.

The bottom line is the credit monitoring will help you spot identity theft early.

The bad news is that the “insurance” component will usually not offer you anything you cannot do yourself at no cost. Most victims of identity theft do not incur significant out-of-pocket expenses that a policy would cover, and you can fix the problem yourself by contacting creditors, credit bureaus, and banks. If the policy is included in a homeowner’s insurance policy or it includes services you may use, it may be worth the cost.

Still, with the severity and sophistication of more recent identity thefts you should consider taking some action to better protection your ID. Even if you are not sold on monitoring services, there are steps to take to protect yourself.

Alternatives to Buying ID Theft Insurance

Among households in which at least one member experienced one or more types of identity theft, 64.1% experienced the misuse or attempted misuse of an existing credit card account in 2010. This means that almost two-thirds of identity theft victims can be liable for no more than $50 in fraudulent charges – and most credit card issuers waive that anyway. And all you need to do under these circumstances is call your card issuer.

A Javelin Strategy & Research survey found just 20% of more than 12 million ID theft victims in 2012 incurred any out-of-pocket costs. An ID theft insurance policy may have a  high coverage limit of up to $1 million — which certainly sounds generous — but there is a good chance you won’t use any of it, even if you are the victim of identity theft.

Don’t be swayed by ID theft services that sound helpful or valuable. Instead, take the time to analyze how each service really works and what it can do for you. Keep in mind most identity theft victims needed a day or less to resolve the problem on their own, according to the Bureau of Justice Statistics.

Here are a few no-cost and low-cost ways to protect yourself from the damage of identity theft:

Keep Tabs on Your Credit Report

Review your credit reports regularly. Order free copies of your credit reports from Equifax, Experian, and TransUnion using annualcreditreport.com to check for incorrect or potentially fraudulent information.

If you want to be able to review your credit report more frequently, check out this article for tips on low cost or free options available to you.

Review Your Statements

Review your bank and credit card statements for unfamiliar charges. In cases of identity theft, fraudulent charges often appear first as small charges, such as at a gas station, to avoid arousing suspicion and check that the account has money.

You can even sign up for alerts. Most banks and credit card issuers allow you to sign up for free alerts sent to your phone or email when a transaction posts to your account.

Use Better Passwords

Use strong passwords for all online accounts. Use a different password for each account. And don’t forget to sign up for two-factor authentication on all websites that enable it.

Think of using a password manager so you can easily create, store, find and fill in strong, unique log in information on every website you visit.

Credit Freezes and Fraud Alerts

You can place a security freeze on your credit reports. A freeze on your report prevents lenders and others from accessing your credit report and extending credit to you. You will need to take extra steps to verify your identity when you want to apply for credit of any kind – sometimes even occurring the cost to unfreeze your credit report and then to re-freeze it. The fee for a security freeze/un-freeze is usually less than $10.

A lower cost (i.e., free) alternative is a a fraud alert. Fraud alerts require the credit bureau to contact you to make sure that you are actually applying for new credit. There is no cost. But a fraud alert is only good for 90 days. So you will need to remember to renew it every 90 days.

But, be advised, both credit freeze nor fraud alerts are effective at stopping someone from taking out new credit in your name. But they will not stop someone from filing a fake tax return on your behalf, using your identity if stopped by the police, stealing your medical insurance information, or other similar forms of identity theft.

Unfortunately, there are no perfect lock down solutions. So, no matter what, you will need to be vigilant. And in the end a service may be the best bet to help you maintain your vigilance.

Still Interested in Identity Monitoring Services?

If you still think ID monitoring services are the way to go, we recommend you check out IdentityForce.

With IdentityForce, you will get:

  • Protection backed by a nation-wide $1 million insurance policy
  • Daily 3-Bureau Credit Monitoring
  • Continuously monitor your personal information to detect illegal trading and selling
  • Instant notification when your personal information is being misused
  • 24/7 fully-managed restoration services by Certified Protection Experts
  • Free Two Week Trial
Protect My ID

The editorial content on this page is not provided by any of the companies mentioned and has not been reviewed, approved or otherwise endorsed by any of these entities. Opinions expressed here are the author's alone. Additionally, the opinions of the commenters are not necessarily the opinions of this site

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