Identity Theft Insurance 101

Do You Need This Personal Protection?

Identity Theft Insurance 101
October 13, 2014

Identity theft is on the rise. According to Javelin Strategy & Research, approximately 13.1 million Americans fell victim to fraudulent use of their identity in 2013 – a half-million more victims than in 2012. That equates to one identity theft every 2.5 seconds. It is reasonable to expect there are even more stolen identities that have not been used for fraudulent purposes yet.

Given these statistics, should you consider identity theft insurance?

First, we should clarify what identity theft insurance is. Some consumers are not even aware this insurance exists, and others that do know of it mistake it with identity theft protection.

Identity theft insurance’s primary purpose is not to be a protection system. Its purpose is to help you recover the costs associated with straightening out your affairs after fraudulent use of your identity. It does not cover reimbursement for stolen funds and unauthorized purchases, which is a common misconception. In reality, it is an expense reimbursement program instead of a typical insurance policy.

What does identity theft insurance cover? Policies vary, but there are two common coverage categories.

  • Fees - There are a staggering number of fees incurred along the way in re-establishing your identity – including re-application fees, notary and filing fees, postage and shipping fees, service fees from banks and creditors… and most of all, legal fees. Carefully scrutinize the legal fee coverage, because that is one of the largest expenses that you are likely to incur.

  • Lost Wages/Care Expenses – Restoring your good name is a time-consuming process, and you are likely to need time off work or care responsibilities to deal with the necessary phone calls, letters, and appointments. Identity theft insurance will cover your lost wages as well as child and/or elder care expenses up to a pre-set limit.

As you investigate identity theft insurance options, consider the following:

  • Cost vs. Coverage – According to the National Association of Insurance Commissioners (NAIC), premiums for identity theft insurance usually range from $25-$60 per year and provide around $10,000-$15,000 in coverage. Some programs provide higher levels of coverage, even up to $1 million, with appropriately higher premiums.

  • Deductible – Deductibles are usually in the range of $100-$500 according to NAIC.

  • Theft Protection – Identity theft insurance may be bundled with methods of identity theft protection to provide a more comprehensive approach, and potentially either lower premiums or greater coverage for equivalent premiums.

    In this case, consider who is offering the package. Is it an insurance company or a credit monitoring service? Their expertise will fall on one side, so give the other side extra scrutiny as you compare programs.

  • Exclusions – Check the exclusions on coverage. An unusually good deal on a premium may be available only because a major category of risk is excluded.

Filing claims is generally done through a toll-free number with your insurer. You will be assigned a claims representative who will guide you through the rest of the process.

As with any non-mandated insurance, identity theft insurance is a peace-of-mind purchase. If you have compared your policy options with other identity theft protection measures, and you decide that the expense is worth the peace of mind it brings you, go ahead with your purchase. However, you must make sure that you understand all of the policy provisions and exclusions to avoid being doubly disappointed if you ever have to file a claim.

Finally, regardless of whether you purchase identity theft insurance, make sure you are employing some form of identity theft protection. Otherwise, be prepared for your eventual 2.5 seconds of unpleasant infamy, and months of cleaning up the aftermath.

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  Conversation   |   29 Comments

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Debbie | 10.03.15 @ 04:05
I need to read up on all of this information. I have gotten many calls about things I never bought from hack credit collectors trying to get info from me over the phone....
Steffanie | 10.03.15 @ 04:05
The more I read the more I think the insurance would be a good thing.
Nancy | 10.03.15 @ 04:07
I knew that it was a hassle to try to recover from ID theft, I just never realized how expensive it could be. Insurance might be a good idea.
Erin | 10.03.15 @ 04:18
I didn't know there was insurance for ID theft. Great information to have!
Apryl | 10.03.15 @ 04:47
Such a scary thing to have to consider!
Alec | 10.03.15 @ 04:49
I wasn't aware this was something that was available. Depending on the cost, this is probably something I will look in to getting in the future.
Britt | 10.03.15 @ 05:08
Great info. I have sadly fallen pray to such scams in the past
Bobbie | 10.03.15 @ 05:37
I can't see the point of ID theft insurance. Freeze your credit with the companies will help, but with the way hackers can get into just about anything now like health insurance companies, credits card companies, and even government records, the insurance seems like a waste of money.
Victor | 10.03.15 @ 06:16
These days you have to be very careful, when providing any information you never know where it would end up
Selena | 10.03.15 @ 08:44
Did not realize how much it would cost, time and money, to reestablish your credit.
irene | 10.03.15 @ 10:26
I tried Life Lock once and didn't find it to be worth the cost
Zanna | 10.03.15 @ 11:37
It's unfortunate that a victim of identity theft would end up paying so much out-of-pocket expense to recover from it. This coverage might be a useful thing to have.
Jonathan | 10.03.15 @ 11:50
If your smart with your personal info, theft insurance isn't really necessary, also if credit bureaus would stop using SSN for everything it would help.
Daniel | 10.03.15 @ 12:07
As the threat of identity theft grows stronger all the time this info is a great read to decide what you may decide you need as protection.
Shannon | 10.03.15 @ 12:21
Interesting concept but the fees may be too much! Keep a watchful eye on all your accounts and catch problems as they happen.
Jackie | 10.03.15 @ 12:30
It's probably a good idea to purchase identity theft insurance. I check my accounts every day to see if there's any suspicious activity. No problems to date but with hackers getting more bold every day it's a constant worry.
Heather | 10.03.15 @ 12:51
Never really thought about this before but with all the computer hacks that keep happening this is something to look into. Anything to make the process of recovering your identity would be great.
Christina | 10.03.15 @ 13:15
Good information.. I need to check on this.
Angie | 10.03.15 @ 13:35
This is worth investigating - wonder if it's affordable?
Jo Ann | 10.03.15 @ 13:36
Well the cost isn't outrageous, It might be worth it just for the piece of mind.
George | 10.03.15 @ 13:51
Need to find out more about this. It's a scary thought to go through something like this.
STOKES | 10.03.15 @ 13:51
Unfortunately, I think while these companies attempt to provide a nessary service, often these are things people could do for themselves.
trish | 10.03.15 @ 14:10
It's something to consider now a days for certain but I would need to investigate more to see its value
Jennifer Sears | 10.03.15 @ 14:35
This is something I've been thinking about a lot lately. I've never had any issues but I'm always worried about it.
Rindy | 10.03.15 @ 15:25
I had now idea there was insurance for ID Theft but it should not surprise me. This has become such a problem.
Elaine | 10.03.15 @ 15:32
Never knew there was insurance for this. I wonder though, if it is like many other insurances with all their loopholes.
Kathryn | 10.03.15 @ 15:52
After hearing about a few people who have gone through identity theft, I have looked into this and may be considering it in the future.
gracie | 10.03.15 @ 15:57
I believe identity theft insurance is a useful and increasingly needed product in our lives
Kamie | 10.03.15 @ 16:02
This is interesting, and with nowadays it seems great, but what if no one ever goes after my identity then I see the money spent as a waste.
$commenter.renderDisplayableName() | 11.28.20 @ 10:12