Identity theft insurance: What is it and do you need it?

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Written by
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Reviewed by
Farmers CSR for 4 Years
UPDATED: 2020-02-04T02:17:38.001Z
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Identity theft written in computer code with a silhouette of a hand.

Having identity theft insurance is important in this world of data breaches and fraudulent activity. It can take months, or even years, to recover from identity theft. Plus, it can be a costly process to reclaim your identity and restore your credit. With identity theft insurance, you can receive insurance protection to help cover the costs associated with recovering from identity theft.

You may be wondering, what are the odds that I’ll experience identity theft? According to the most recent study from the U.S. Department of Justice, an estimated 26 million people experienced identity theft in the previous 12 months. That’s 10 percent of all United States residents age 16 or older. While the risk of identity theft is noteworthy, is it worth it to buy identity theft insurance?

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What is identity theft insurance?

Identity theft insurance covers victims of identity theft and helps them recover from stolen personal information. Identity theft is the criminal or fraudulent act of someone stealing and using your personal information for their own financial gain. Thieves may use your personal information without your permission to make purchases, open fraudulent credit card accounts in your name, make fraudulent health insurance claims, access your financial accounts to steal money from you and more.

Identity theft can happen in a number of ways including through a data breach, internet browsing on an unsecure network or website, credit card theft, the dark web, phishing and scam messages, Wi-Fi hacking and more.

After identity theft, victims often take a hit financially and to their credit reputation. It may require hiring professionals to help restore credit and recover from the incident, and the process can take months to recover. If you have identity theft insurance, it can help you with the cost for services and legal fees that result from the attack.

What does identity theft insurance cover?

Identity theft insurance covers you for reimbursement of expenses incurred as a result of identity theft. It doesn’t cover you for your direct financial loss that you experience with identity theft, such as fraudulent credit card purchases or stolen money.

Some of the common things identity theft insurance covers can be found below. Be sure to check with your insurance company to see what you’re covered for.

  • Lost wages from missing work to handle identity theft
  • Attorney and tax advisor fees
  • Resolution services to help you restore your credit and reclaim your identity
  • Legal fees
  • Credit monitoring services to monitor if your information is found on the black market
  • Copies of your credit report
  • Notary fees
  • Cost for certified mail or long-distance phone calls
  • Other administrative fees

In some cases, depending on your identity theft insurance company and policy terms, your identity theft insurance protection will extend to everyone in your household, even children.

Does homeowners insurance cover identity theft?

Homeowners insurance covers you for stolen personal items, but a standard home policy doesn’t cover a stolen identity. Many homeowners insurance companies offer identity theft insurance as an optional coverage that you can add to your home insurance policy as a rider or endorsement. This typically increases your premium a little bit to offer you the extra coverage.

How much does identity theft insurance cost?

Identity theft insurance typically costs $25 to $60 per year, according to the National Association of Insurance Commissioners (NAIC). The NAIC also reports that most identity theft insurance policies have policy limits of $10,000 to $15,000. Some policies have a deductible between $100 and $500.

Do you need identity theft insurance?

Identity theft insurance offers peace of mind that you can recover from an identity theft attack. Peace of mind is a valuable thing, especially when it comes to something as important as your identity, but it’s important to decide if it’s worth it for the price. If you’re deciding on whether or not you should purchase identity theft insurance, take into consideration how much it costs and what the policy offers you. It can help to look at multiple companies to compare prices and what features they offer.

According to the U.S. Department of Justice study, identity theft victims lost a total of $17.5 billion to identity theft in 2016 alone. On average, victims lost $850 to identity theft, but it’s possible to lose much less or more to identity theft. Consider this value and the cost of a policy when deciding if you should purchase identity theft insurance.

In addition to identity theft insurance, there are also other services you can use to help protect your personal information including identity protection services or credit monitoring services. Rather than cover the fees and expenses caused by identity theft like identity theft insurance, credit monitoring services and identity protection services monitor your personal information to alert you of suspicious activity.

Credit monitoring services track your credit reports so you can be alerted of any fraudulent activity. Identity theft protection services go beyond monitoring your credit and also monitor other aspects like changes to your mailing address, court or arrest orders, orders for services like cable and utilities and so on. If you don’t want to monitor your credit on your own or you want extra protection, these services can be helpful.

Some credit cards offer free monitoring services as a benefit for having an account. This can monitor the dark web for your social security number. Some credit cards also offer a more in-depth identity theft protection monitoring service that you can pay for. If your card offers a free service, you should consider enrolling. For more protection, you can enroll in a paid service.

Ways to protect yourself from identity theft

The variety of methods to steal identities seems to be constrained only by the creativity of criminals. From “skimmers” installed on legitimate ATMs, to “phishing” schemes, to the previously mentioned cloning (creating duplicate/fake cards), consumers must be on the lookout for anything that seems odd. Here are some things you can do to protect personal information:

  • Know how to spot “skimmers.” These are fraudulent devices that can read and record your bank card’s magnetic strip. Criminals install them on top of legitimate card readers, such as ATMs and gas pump card readers. Once obtaining a card number and PIN, criminals can create a “clone” card and use that anywhere a card is accepted.
  • Cover the keypad with your opposite hand when entering in your PIN;  this will prevent a camera from recording your number if there is a skimmer.
  • Don’t keep your social security card or number in your wallet or purse — only carry your card with you when you know you will need to present it
  • Don’t write your PIN on your bank card, or carry it in your wallet.
  • If you shop online, make sure that you are using sites that are secure. Look for the “https” and a padlock symbol at the web address line.
  • Be extremely wary of emails from your financial institutions or any companies with which you have accounts, especially if those emails prompt you to follow a link to change your password. When in doubt, call and ask before making any changes to your login credentials or accounts.

Check your bank and credit card accounts regularly, and your credit report annually. Consider putting a fraud alert on your credit report  —  this will make it more difficult for someone to open an unauthorized account in your name.

How to get identity theft insurance

You can get identity theft insurance by adding the coverage to your homeowners insurance or by purchasing a standalone identity theft insurance policy from a different company. You can start by contacting your insurance company or agent to see if identity theft insurance is offered. See how much it would cost to add to your homeowners insurance policy and what features it offers.

Like all insurance types, you should consider getting identity theft insurance quotes from multiple different companies to compare price and features included. When looking at the features offered, pay close attention to if it offers compensation for lost wages and legal fees. Additionally, check what the coverage limits are and any other limitations to the coverage.

Do you want to know which companies offer identity theft insurance? Visit Clearsurance’s homeowners insurance rankings page and use the filters to select Identity Theft Insurance under the Additional Coverages filter. This will give you a ranking of the best homeowners insurance companies that offer identity theft insurance.

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