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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