Highlights:
- Identity theft insurance is a type of insurance policy that provides financial protection for victims of identity theft.
- Coverage varies between insurers, but identity theft insurance generally aims to cover costs associated with the recovery process after you have become a victim of ID theft.
- It’s important to note that identity theft insurance policies typically don’t cover stolen money or direct financial losses from fraudulent purchases and other unauthorized use of credit accounts.
Identity theft can be financially devastating and difficult to resolve. Although there are preventative steps you can take, even the most careful planning can’t eliminate the threat of identity theft. So, what happens if your identity is stolen? This is where an identity theft insurance policy might help.
How does identity theft happen?
There are many different types of identity theft, but they all start with a criminal stealing a victim’s personally identifiable information (PII). Examples of PII include your date of birth, address, full name, driver’s license number and Social Security number.
A criminal can obtain your PII through any number of methods. They might steal mail that includes personal information, install malware on your computer or hack into your private accounts. After accessing your information, they may sell your PII or use it themselves to impersonate and defraud you.
The financial and other consequences of identity theft can be significant.
How does identity theft insurance work?
Identity theft insurance is a type of insurance policy that provides financial protection for victims of identity theft. It’s offered by insurance and credit card companies, and it can be included in an identity theft protection service such as Equifax Complete™ Premier.
You’ll commonly find identity theft insurance offered as a rider on a new homeowners insurance policy or as an add-on to an existing policy. It can also sometimes be secured as a standalone policy or service.
What does identity theft insurance usually cover?
A victim of identity theft commonly faces fraudulent charges and damage to their credit history. Depending on the type of identity theft and the sophistication of the criminal, the financial damage can be extensive. Some victims may even need legal help to aid the recovery process.
Details vary between insurers, but identity theft insurance generally aims to reimburse you for costs associated with this recovery process. For example, identity theft insurance might cover:
- Fees for case managers or identity restoration specialists to help guide you through the recovery process
- Legal fees for civil judgements, court hearings and attorneys
- Costs of replacing important identifying documents, like your driver’s license or Social Security card
- Lost wages associated with identity theft
- Costs to place fraud alerts on your credit reports
- Fees charged by your bank or other lender as a result of fraudulent financial activity
What does identity theft insurance not cover?
It’s important to note that these insurance policies typically don’t cover stolen money or direct financial losses from fraudulent purchases and other unauthorized use of credit accounts. They typically reimburse you only for the costs of the reporting and recovery process. Policies vary, but compensation is usually limited to between $10,000 and $15,000.
Generally, federal law protects you from liability in cases of financial fraud associated with identity theft. For example, the Fair Credit Billing Act limits your loss from unauthorized use of your credit card to $50.
For additional protection, try exploring options outside of insurance. Identity theft protection services monitor potential sale or unauthorized use of your PII. You can also opt for credit monitoring, a service which tracks specific changes to your credit report — such as hard inquiries, new credit accounts and missed payments — and alerts you immediately.
How much does identity theft insurance cost?
Identity theft insurance typically costs between $25 and $60 a year. Depending on how you purchase the insurance — either as a standalone policy, as a rider or through an identity theft protection service — you may have to pay an out-of-pocket deductible before you’re reimbursed.
Do you need identity theft insurance?
When considering identity theft insurance, ask yourself if you’re a likely target for identity-related fraud. For example, people who work remotely, often conduct business online, have valuable assets or rarely check their credit reports tend to be more vulnerable. If you fall into one or more of these categories, identity theft insurance may be worth the extra expense.
Staying ahead of identity thieves requires a range of tactics. Identity theft insurance can be a valuable addition to your arsenal.
