Identity Theft Insurance: Is It Right For You?
Identity theft insurance reimburses identity theft victims for expenses they encounter when trying to restore their identity and repair their credit reports. While victims are not responsible for the debts stacked up on their credit by imposters, undoing the lasting damage to their names and credit can still be an expensive process. To this end, identity theft insurance provides reimbursement for expenses racked up when restoring your identity like phone bill, lost wages, notary and certified mailing costs, and attorneys.
Identity theft insurance plans can cost from $25-$150 a year on average for $15,000-$25,000 worth of coverage. These plans are often sold as add-ons to homeowner's insurance policies or they can be bought as stand-alone policies.
Is Identity Theft Insurance Worth It?
For some people, the cost of identity theft insurance is worth it for the peace of mind it offers, especially with the continually rising rates of identity theft worldwide. However, this can become a problem if purchasing identity theft insurance gives the buyer a false sense of security.
Buyers still need to monitor their credit reports and bank statements to prevent against identity theft in the first place. You must monitor both since debit problems won't show up in credit reports, only bank statements. Identity theft also only covers the costs associated with identity theft involving credit fraud. The policies won't help if someone has committed a criminal offense, incurred a traffic ticket, or owes taxes in your name.
Forbes also warns that identity insurance isn't necessarily insurance in the sense that we're used to. While home insurance will pay for the repair of your home, identity theft insurance won't fix your credit rating or clean up a criminal record acquired in your name. You will have to do this yourself - identity theft insurance will only reimburse you for your expenses in doing this.
That being said, the cost of restoring your identity can be high, especially since it's such a time-consuming process and victims often have to take time off work to get everything done. To this effect, the most beneficial and appreciated aspect of identity theft insurance is the coverage you receive for lost wages due to time off. However, depending on your job, the coverage you receive for this purpose can be less than satisfactory. The average identity theft victim takes around 22 days off work to clean things up, but a common coverage maximum for lost wages is only $2,000. For someone in middle or senior management, this amount does not compensate for their lost time.
Other coverage aspects such as cost coverage for certified mailing and phone calls is helpful, but coverage for attorney fees is not very useful. Few identity theft victims need an attorney, since the work in cleaning up credit is mostly do-it-yourself. While $5,000-$15,000 coverage is usually available for legal fees to undo criminal acquired in the victim's name, only 16% of victims need these services, and only 40% report the costs of these services being over $1,000.
Thus the majority of coverage in the average identity theft insurance plan is actually useless to the average identity theft victim. Plans would be more helpful if they took the majority of coverage they offer for legal fees and applied it to wage losses instead.
Because of the rising rates identity theft, insurance to cover its victims has gotten ever more popular. But a more prudent approach to protect yourself from identity theft would be to avoid becoming a victim in the first place by following our simple advice to prevent identity theft from happening to you. If the cost of identity theft insurance seems worth it, go for it to get that peace of mind, but don't develop a false sense of security.