What is identity theft coverage and do I need it?

It can take years for victims of identity theft to recover from the fraudulent charges made in their name. Identity theft can cause long lasting problems and affect a myriad of circumstances in your life — be it damage to your credit score or your personal reputation.

Identity theft is becoming all the more common the more we put our financial lives on the internet, and hackers continue to get more creative. The good news is that you can buy an identity theft insurance policy to help protect you from the extensive harm identity theft may cause.

That said, you may not need to purchase a standalone identity theft policy, since your homeowners insurance may already include identity theft protection, or it may be offered as an endorsement that you can add to your home insurance policy for a fee. This type of coverage is designed to help you recover from fraud and get your identity back.

What is identity theft?

Identity theft is the act of stealing someone’s personal information — anything from a person’s bank account number, social security number, or credit card — and using it to impersonate that person. Identity theft can result in major financial problems for the victim, because thieves may open credit cards in their names, hack a bank account, obtain unauthorized loans, and even impersonate them online. There are various ways your identity can be stolen. Some common occurrences include:

• Stolen physical documents, like a Social Security card, government-issued photo I.D., or credit card
• Hacking, either your email, phone, mobile apps, bank account, and more
• False phone calls or emails, like a phishing email, or someone pretending to be a trusted source over the phone. For example, someone may call and coax sensitive information out of you by pretending to be the IRS.

Does homeowners insurance cover identity theft?

Identity theft coverage is typically offered as an endorsement that you can add to your homeowners or renters insurance policy, however there are standalone identity theft insurance policies available, too. Depending on your insurance company, you may be able to add up to $15,000 in identity theft protection to your homeowners policy for an extra $25-$60 a year.

It’s important to note that this coverage usually does not include monetary reimbursement. For example, if someone runs up a credit card bill in your name, your identity theft insurance typically won’t cover paying you back — credit card companies and banks are the ones who are responsible for reimbursing you if your cards get stolen or your bank account gets hacked. Identity theft insurance pays for identity restoration, meaning it helps reverse fraud, so in this case it’d cover the cost of a specialist who’d help you recover and reinstate your original credit score.

Identity theft coverage pays for vital identity restoration services that you may need when trying to get your identity back, such as:

• The cost of a case manager or consumer fraud specialist
• Replacement of government issued identification
• Reimbursement of attorney fees if you take the perpetrator to court
• Assisting with civil suits and criminal cases
• Resolution services to help reclaim identity and restore credit
• Reimbursement of administrative fees and expenses

Basically, identity theft coverage helps you pay for all the services that come with getting your identity back and fixing your credit score, which can be an overwhelming and expensive process to do on your own.

What does identity theft coverage not cover?

Identity theft insurance primarily covers the costs associated with reversing and recovering from fraud, not the fraud itself. If your money is stolen from your bank account or by credit card fraud, it’s your bank's responsibility to reimburse you for it. Many financial institutions have zero-liability and/or fraud monitoring policies in place that minimize the odds of you losing out on your entire bank account. Some identity theft insurers may cover the loss of electronic funds, but this is only if your bank won’t pay you, though in most cases the bank is legally required to.

Is identity theft coverage worth it?

If your homeowners insurance already includes identity theft coverage or offers it as an endorsement, you likely don’t need to go out and buy a standalone policy. There’s also a chance you have coverage through your employer as identity theft insurance is an increasingly popular workplace benefit.

It’s never a bad idea to have more protection, but you should research identity theft policies before purchasing one, as coverage varies from insurer to insurer.

Some factors to keep in mind when shopping for identity theft insurance:

• What are the policy limits? Some insurance companies may only offer up to $10,000 in protection while others may offer up to $15,000
• Is there a deductible? You may have to pay your insurer a set deductible before they will help pay to restore your identity
• Are there any caveats? For example, some identity theft insurers may not cover any lost wages that you incur

How to prevent identity theft

Your identity can get stolen at no fault of your own, but there are several proactive steps you can take to try to prevent fraudsters from getting easy access to your personal information.

• Avoid carrying your Social Security card or passport with you unless you need it that day
• Guard your credit card when making purchases
• When using ATMs, be careful that you aren’t revealing your PIN code to those around you and always take your receipt
• Don’t give out personal information over the phone unless you know the line is secure, especially if you are in a public place as people around you may overhear
• Proceed with caution when shopping online and saving your credit card to certain websites
• Change passwords every few months and make sure your computer security is up to date
• Beware of phishing schemes
• Shred documents with personal information before disposing them
• Monitor your bank and credit accounts and set up fraud alerts