What’s the Deal with Identity Theft Insurance?

Identity theft is undeniably costly. According to a 2018 study by Javelin Strategy & Research, the number of ID theft fraud victims in the U.S. rose 8% in 2017 to an all-time high of 16.7 million consumers. That same study found that there were 1.3 million more victims than in 2016, with the total amount stolen in 2017 reaching an incredible $16.8 billion.

But these statistics only deal with how many people and how much money identity theft involved. After your identity gets stolen there can be additional consequences and costs.

According to The Identity Theft Resource Center’s 2017 Aftermath Study, 26% of identity theft victims had to borrow money from family or friends after they were victimized. Twenty-two percent were required to spend time away from family and take time off from work as a result of their identity theft. And nearly 7% had to obtain costly payday loans after their identities were stolen just to help cover their expenses.

Clearly identity theft can be taxing to its victims and leave a void in their lives as they scramble to make ends meet while working to resolve things. Leave it to the insurance industry—void-filling experts—to develop a product to help fill that void.

What Identity Theft Insurance Does Not Cover

Car insurance pays for damages to your car, so identity theft insurance must pay for damages you sustain when your identity gets stolen, right?

Not so much. Despite how it sounds, ID theft insurance is not a cover-all product that protects you from financial losses resulting from identity theft. In other words, if thousands of dollars of fraudulent credit card purchases are made in your name after your identity gets stolen, an identity theft policy will not cover the cost of those purchases. Those you will have to resolve with your credit-card issuers.

The good news is that, if these charges are determined to be fraudulent, your liability should be no more than $50, or none at all—especially if your credit cards offer $0 fraud liability.

What Identity Theft Insurance Does Cover

Identity theft insurance focuses on the expenses you incur in the process of trying to resolve damages resulting from your stolen identity, not actual monetary losses from the theft itself.

It’s actually more like an expense-reimbursement program than a traditional insurance policy. What’s covered by such a policy can vary by insurance company, the level of coverage you select, and from state to state, but it may reimburse you for expenses like:

• Loss of wages from taking time off to resolve issues pertaining to your ID theft

• Legal and notary fees

• Attorney fees

• The cost of replacing government-issued identifications

• Certified mailing fees

• Services from resolution and credit-restoration companies

• Costs associated with obtaining credit reports and searching public records

• Other administrative fees and/or expenses

How Do You Purchase ID Theft Coverage and How Much Is It?

Many major insurance companies sell identity theft insurance. It is typically offered as a rider or endorsement on another property policy, like homeowner’s or renter’s insurance.

According to the National Association of Insurance Commissioners (NAIC), premiums for ID theft insurance typically range from $25 to $60 per year, with most policies having coverage limits that fall somewhere in the $10,000 - $15,000 range.

So, Should You Buy It?

Unlike, say, automobile insurance, which is required in nearly every state by law, identity theft insurance is purely optional. In deciding whether it’s right for you, you may want to ask yourself questions like these:

• Would an identity theft create a financial hardship in your life?

• Will the cost of expenses recovering from ID theft be more than the insurance premium?

• Will you have to take unpaid time away from work to resolve things?

• Does the policy you’re considering cover lost wages? What about legal and attorney fees?

• How much will the policy actually pay after deductibles have been met?

• Does the policy you’re considering offer any services to help you resolve your issues and/or help you recover from the ID theft?

Also consider how identity theft affects most people.

According to the Bureau of Justice statistics, 88% of identity theft victims experienced out-of-pocket losses of $1 or less, and 55% of ID theft victims who resolved problems with their finances and credit were able to do so in a day or less.

But who’s to say your experience with ID theft, should it happen to you, would be typical? And if having a policy provides you with peace of mind, then perhaps the premiums you pay are worth every penny to you.

So do your homework, ask the right questions, crunch the numbers, and then turn the decision over to the one person who knows your situation and understands your comfort level with risk better than anyone else: the man (or woman) in the mirror.