Identity Theft Insurance: What Is it and Is it Worth It?

If you become the victim of identity theft, identity theft insurance can help restore your finances and get you back on firm footing as you work to reclaim and secure your data. In 2022, 13.5 million people in the U.S. reported identity theft. So even when you are extremely careful with your data, you could become a victim. Here’s why you might consider insurance protection and the value it can provide.

What Is Identity Theft Insurance?

Many common insurance companies offer ID theft insurance as an add-on to property coverage. This insurance offers financial resources to aid in getting back to normal after theft. Some financial coverage you might find from an insurance policy includes:

• Certified mailing expenses
• Lost wages
• Monitoring services that watch chat rooms and the dark web for your information
• Notary fees
• Public records searches

An important thing to note about this insurance is that it generally does not cover the funds the thief steals from your bank accounts or other financial resources. You’ll still need to work with your financial institutions to restore those funds.

Much like your auto or home policies, your coverage might be capped at certain amounts, such as a percentage of your salary or a set number of weeks for lost wages. Most policies also have a deductible that you must pay before you receive any funds from the insurance company to cover your needs.

Understanding Identity Theft and How it Happens

Identity theft is when someone steals the personally identifiable information (PII) of another person. PII could include any of the following:

• Name
• Birth date
• Mailing address
• Driver’s license number
• Social Security number

The thief can get this information in a variety of ways. One common method is going through your mail. Modern methods are digital and might involve installing malware on your computer or hacking your private accounts. Once they have access to your accounts, they can easily see your financial data and use it to impersonate you.

Different Types of Identity Theft

The term identity theft is broad and covers a variety of scenarios. Here’s a look at some of the types of fraud you could encounter.

Financial ID theft: Thieves use your data to gain access to your finances, such as your bank account or credit card. That way, they can make purchases or open new credit cards in your name for which you never get a bill or statement.

Tax ID theft: Thieves can file a tax return in your name to claim your tax refund.

Medical ID theft: Fraudsters can seek medical care under your identity to receive coverage and stick you with the bill.

Employment ID theft: A thief might use your identity to obtain a job and pass a background check.

Child ID theft: Because most parents don’t know how to monitor or freeze their child’s credit reports, thieves take advantage of that and use their PII to open accounts undetected. Commonly, youths don’t find out about this fraud until they apply for their first car loan or student loan.

Estate ID theft: After a person dies, thieves use their identity to steal money or open accounts in their name.

Criminal ID theft: After someone has been arrested for a crime, thieves take advantage of the fact that they are in prison and use their ID to open accounts.

Synthetic ID theft: This scenario involves thieves using fake or a combination of fake and real information to open accounts. They can be harder to detect because they use a real Social Security number but a fraudulent name, making it take longer for the fraud to show up on accounts. 

How Does Identity Theft Insurance Work?

This insurance offers financial resources to help you restore your credit and financial well-being after becoming the victim of identity theft. Many insurance carriers and financial institutions offer this insurance coverage.

It’s challenging to know whether you could be the victim of identity theft. Some of the most common people who require coverage include:

• Remote workers
• Those who conduct business online regularly
• High-net-worth individuals
• People who rarely check their credit reports
• Frequent online shoppers
• People with children who use their credit cards online

What Does Identity Theft Insurance Cover?

Identity theft insurance covers you for expenses you incur to reclaim and secure your identity. Based on your policy coverages, you might get reimbursement for:

• Bank fees
• Certified mailing expenses
• Childcare expenses to attend meetings and complete required communication for restoring your identity
• Credit monitoring services
• Credit report pulls that exceed the major credit bureau’s maximum
• Cyber coverage to secure your home Wi-Fi network and restore lost data
• Legal expenses
• Lost wages for time off you need to restore your identity
• Identity restoration expenses, such as replacing lost documents and preparing affidavits on your behalf
• Notary fees

What Does Identity Theft Insurance Not Cover?

Insurance for identity theft likely does not cover reimbursement for stolen funds. But thanks to U.S. laws, you likely have protection for these funds through your financial provider. Many losses are capped at $50 when the victim reports fraudulent activity to their financial provider quickly. 

Benefits of an Identity Theft Insurance Policy

Identity theft protection insurance can help victims restore their financial footing. Some experts estimate that victims spend up to 200 hours to recover their identity over six months or more.

Throughout that time, many people must take time off work, hire an attorney, work to get documents restored and apply for new IDs. The process requires more resources than you might think. That’s why these benefits can be crucial in the restoration process.

• Fraud resolution support: Reduce the hundreds of hours involved in restoring your ID by getting access to 24/7 specialists who can help.
• ID monitoring: Most policies come with monitoring services to help you detect fraud quickly to reduce the impacts you experience.
• Fraud alerts: Specialists will monitor your credit reports across the three major credit bureaus to ensure no one takes out a loan in your name or to see whether there is suspicious activity on your account.
• Digital security: Because so many transactions and interactions take place online now, most insurance policies include digital security tools to help prevent malware or viruses and educate policyholders on common online scams. 

How Much Does Identity Theft Insurance Cost?

Compared to other forms of insurance, identity protection insurance is affordable. Most insurance companies offer it as an optional coverage for $25 to $60 per year. But for accurate numbers, you’ll need to reach out to your insurance agent and see the best arrangement for you. It might be better to purchase a separate policy from your property insurance or bundling the coverage might make it more affordable. It all depends on your unique situation.

In some cases, the insurance costs more than you will lose in an identity theft scenario because laws protect you from such losses so long as you report fraudulent transactions promptly. Generally, your credit card and bank account cap losses at $50, and there are clear channels for reporting and removing fraudulent activity from your credit reports.

Most of the time, lost wages and other insurance-covered fees do not come into play for victims.

What to Do if You’ve Become a Victim of Identity Theft

Once you discover that you are the victim of identity theft, follow these steps to prevent the thieves from taking more from you.

1. Place fraud alerts on credit reports: This can help prevent additional accounts from being opened in your name and give you a chance to decline approvals for new loans or accounts that you don’t approve of.
2. Close fraudulent accounts: Work with the financial institution to close fraudulent accounts or accounts that thieves have tampered with. Notify all affected parties and financial institutions for the best possible results.
3. Report theft to the Federal Trade Commission: This provides more protection and assistance for preventing additional fraud. You can call the toll-free hotline at 1-877-438-4338 or complete an online report.
4. File a police report: You’ll complete this step through your local police department. Take a printed copy of your ID theft complaint form and any supporting documentation when filing your report. You might need this to dispute fraudulent accounts and get financial protection from your credit card company or banking partner.

Acting quickly will help protect your financial accounts and long-term well-being. Many institutions have timelines for when you must report fraud to protect your accounts.

Tips on How to Protect Yourself From Identity Theft

While it’s smart to carry insurance to protect against financial losses from identity theft, you should take these additional steps to safeguard your information.

1. Get ID theft protection monitoring: You might have access to this service through a financial provider or need to purchase it elsewhere.
2. Check statements and bills carefully: Review documents for any changes or surprises and report such information to the financial institution immediately.
3. Use unique passwords: Protect your accounts with unique passwords to make it more challenging for hackers to steal your information.
4. Shred important documents: Before throwing them away, destroy all documents with your PII to protect your identity.
5. Freeze accounts for children and elderly family members: This helps reduce the likelihood of fraud on these susceptible individuals.
6. Know when to expect mail: You’ll be better aware of when a thief steals your mail if you know what to expect and when. Or you can transition all important accounts to digital statements.

Support and Protection for Your Finances

Ultimately, the main reason to purchase identity theft insurance coverage is to have resources and support in case you become a victim. That way, you don’t have to navigate the complex process alone and will have the tools necessary to stop the thief quickly to reduce the damage to your reputation. 

Frequently Asked Questions