Do You Need Identity Theft Insurance?
Over 3.2 million consumer reports were received by the Federal Trade Commission in 2019, generating over $1.9 billion in total financial losses, or a median loss of $320 per victim. Over one fifth, or nearly 651,000, were reports related to identity theft. Identity theft is a crime that involves thieves stealing your personal information and using it for personal or financial gain. Victims not only incur financial losses from the theft but also indirect losses afterward when they pay for credit-monitoring services or take other steps to recover their identity.
Identity theft insurance is a type of coverage that helps cover certain out-of-pocket expenses associated with recovering from identity theft, which is different than identity theft protection services. Understand the types of identity theft that modern consumers face as well as how identity theft insurance can help financially protect you if your identity is stolen.
Types of Identity Theft
Identity theft insurance is attractive namely because of the many types of identity theft and resulting fraud that consumers face, including:
- Social Security identity theft: This occurs when a thief steals your Social Security number in order to collect government benefits or other benefits available to you, access your work history or medical records, or open financial accounts in your name. Amidst the recession in 2020 caused by the COVID‑19 pandemic, scam artists have attempted to use the Social Security numbers of individuals with unclaimed state unemployment benefits to apply for and claim them for themselves.
- Financial identity theft: This is when a thief steals your credit card number or other personal information to make unauthorized purchases or otherwise profit off of you, which can leave you with bills you can't pay or damaged credit.
- Tax and other federal payment identity theft: This occurs when someone steals your Social Security number and then files a fraudulent tax return under your name and claims your income tax refund. In 2020, scammers have also tried to obtain taxpayers' filing information to fraudulently claim their COVID-19 economic impact payments.
- Criminal identity theft: This is when someone steals your personal information in order to commit crimes in your name that could later prevent you from getting a job or for which you could be held personally liable.
- Insurance ID theft: If someone gains access to your health insurance or other insurance ID information, they can receive insurance benefits in your name. In 2020, scammers promising antibody tests or treatments for COVID-19 have tried to dupe policyholders into giving out their insurance information in order to charge insurance providers for products their victims would never receive.
Identity Theft Insurance Policy Features
Although this type of insurance doesn't reimburse you for financial losses directly incurred from identity theft, it pays for certain out-of-pocket expenses you may incur from recovering from identity theft, usually through reimbursement payments, but is subject to certain limitations as any other insurance policy.
Policy specifics vary based on the company, but commonly covered out-of-pocket costs include:
- Cost of obtaining credit reports
- Credit-monitoring services
- Long-distance telephone expenses
- Lost income
- Legal costs
- Postage and mailing fees
- Notary fees
- Chat room and dark web monitoring services
- Public record searches
- Antivirus software
- Childcare costs
Identity Theft Insurance Costs and Limits
Identity theft insurance policies typically cost $25 to $50 per year on average for $15,000 to $25,000 in covered expenses. Identity protection services that include insurance range in price from a few dollars to $15 or more per month.
The insurance doesn't reimburse you for money that was stolen from you. Nor does it typically cover losses covered by your homeowners or renter's insurance policy. In addition, you may first have to meet a deductible before your insurance starts to reimburse you. Other policy-specific exclusions may apply, so carefully read the terms of your policy to determine what is and isn't covered.
Identity theft insurance typically doesn't reimburse you for money stolen as a result of identity theft.
Who Offers Identity Theft Insurance?
This type of insurance is offered by insurance companies as an add-on to a property insurance policy as well as by security companies as part of an identity protection service.
Below are several major companies that offer some form of identity theft coverage.
Nationwide Identity Theft Insurance
Nationwide offers identity theft protection starting at only $45 per year as an add-on to an existing Nationwide policy. A team of resolution specialists will guide you through the process of restoring your identity and credit, reimbursing you for up to $25,000 in covered out-of-pocket expenses. Monitoring services are also available.
Liberty Mutual Identity Theft Insurance
Starting at $35 or less per year, Liberty Mutual's identity theft insurance offers the services of its Identity Fraud Crisis Resolution Center when fraudulent activity is detected. The team will notify the three national credit bureaus (TransUnion, Equifax, and Experian) when fraudulent activity is detected to avoid additional losses. The Identity Fraud Expense coverage, an add-on to the homeowners' policy, reimburses covered expenses such as lost wages, attorneys' fees, and more up to $15,000 per occurrence and $30,000 per policy term.
State Farm Identity Theft Insurance
State Farm’s Identity Restoration Insurance Policy costs just $25 per year and can be added to an existing State Farm policy. The coverage includes you and any spouse, relatives, or dependents under the age of 21 who live in your household. You'll get a dedicated case manager who will work with credit card companies, credit bureaus, and any financial institutions for up to a full year in resolving a covered incident. State Farm reimburses you for expenses up to $25,000 for covered expenses, including credit reports, bank fees, and more.
LifeLock Identity Theft Coverage
LifeLock includes identity theft insurance as part of its Standard Identity Theft Protection service, which costs $9.99 per month for the first year and includes a host of features including credit monitoring with one bureau, privacy monitoring, dark-web monitoring, and a patented alert system that notifies you of suspicious transactions. The plan is unique in that it not only reimburses customers for up to $25,000 in covered expenses ranging from travel fees to lost wages, but also reimburses you for up to $25,000 in stolen funds.
How to Prevent Identity Theft
Most identity theft insurance policies only reimburse you for certain losses you incur from identity theft, often up to limits that may not compensate for the serious, sometimes long-term damage you experience. As such, the best way to minimize losses is to avoid having your identity stolen in the first place. You can do so by following these strategies:
- Avoid carrying bank or ID cards you don't need every day, such as seldom-used credit cards, your passport, and your Social Security card.
- Don't share personal or financial information unless you trust the person or institution requesting it.
- When shopping online, only buy from secure, reputable websites.
- Review your credit card and bank statements regularly for suspicious transactions and report them promptly.
- Review your three credit reports annually for negative items you don't recognize and report them immediately.
- Consider placing a security freeze on your credit reports to keep any new credit accounts (credit cards or loans, for example) from being taken out in your name without your knowledge. It's usually free and as simple as calling the relevant bureau, requesting a credit freeze, and supplying some personal information.
People ages 30–39 filed more identity theft reports with the FTC in 2019 than any other age group; those ages 80 and above filed the fewest.
Is Identity Theft Insurance Worth It?
The U.S. Department of Justice found that only 12% of identity theft victims, who were last surveyed in 2016, experienced financial losses of $1 or more. Of that group, roughly half had out-of-pocket losses of $99 or less, indicating that the benefit of identity theft insurance isn't substantial for the average person who sustains nominal financial losses in recovering from identity theft. You stand to gain the most from identity theft insurance if:
- You don't have the time or patience to take the preventative steps listed above to protect your identity.
- You have a propensity to share information online regularly, either through social media or with online stores.
- You have a high net worth or for other reasons expect to incur above-average out-of-pocket losses in legal and other covered expenses.
- The company where you get your insurance also reimburses stolen funds or provides credit monitoring or other valuable services that can help you curb additional financial losses.