What is Identity Theft Insurance?
There’s no guarantee against identity theft — unless you go peak Ron Swanson, destroy your cell, and order every iPad in existence to ERASE ALL PICTURES OF YOU! (And even that’s no failsafe. The world is a nightmare.) But there is insurance that provides monitoring to minimize the odds of serious identity theft and help after you’ve fallen victim.
Identity theft insurance primarily covers costs associated with getting your good name and good credit back after a fraudster goes to work. It’s commonly offered as a rider to homeowners insurance, renters insurance or even auto insurance, but there are standalone policies available, too. Some identity theft insurers provide policyholders with free credit or cyber-monitoring services, too, that alert you if something funny pops up on your credit report or the dark web.
According to the National Association of Insurance Commissioners (NAIC), identity theft insurance costs between $25 and $60 per year.
What Does Identity Theft Insurance Cover?
Identity theft insurance — also sometimes called identity theft protection — primarily covers expenses you run up while trying to restore your identity and repair your credit post-crime. We’re talking credit reports, phone bills, photocopies, notary and certified mail fees, legal or attorney fees (sometimes) and even lost wages related to all the time you spent fixing the fraud.
Some identity theft insurance policies provide monitoring and resolution services, too. So a service will keep an eye on your credit report, criminal websites or, even, medical records for signs of fraud and alert you if something suspicious occurs. Say, for instance, your Social Security number shows up for sale on the dark web; you’ll get notified.
In terms of resolution services, someone does the bulk of the legwork associated with reversing fraud (i.e. disputing errors on your credit report, reversing fraudulent credit card charges, filing a police report, etc.). Resolution services can also come with some form of credit monitoring for victims.
What Doesn’t Identity Theft Insurance Cover?
OK, this is super-important: Most identity theft insurance does not cover monetary losses incurred as a direct result of the crime. So if a thief runs up a bunch of medical bills in your name, the insurer isn’t likely to pay them for you. There’s a good reason for that — those bills don’t actually belong to you, but paying them could be seen as acceptance of such. And, while you might be thinking, “better to just pay the bills and put the whole thing behind me”, there are other consequences associated with identity theft — like a poor credit score — that justify fixing the issue properly.
A few identity theft insurers offer some cover for financial losses, particularly when it’s related to electronic funds. That coverage kicks in if your bank won’t make good on the stolen funds, though, in most cases, it will. Federal law limits a credit cardholder’s liability for fraud to $50. Debit cards offer less protection. You’re generally liable for $50 if you report the fraud within two days, up to $500 if you report within 60 or totally on the hook if you report beyond that (so monitor your statements). Keep in mind, 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.
Still, the point is, identity theft insurance primarily covers the costs associated with recovering from fraud, not the fraud itself.
Do I Need Identity Theft Insurance?
You actually might have it already. Some homeowners insurance and renters insurance policies include identity theft insurance, and, if not, you can generally add the coverage for nominal fee. There’s also a chance you have coverage through your employer as identity theft insurance is an increasingly popular workplace benefit. Check with your HR department to see if your company offers coverage or, at least, provides identity theft resolution services.
A solo policy can prove worthwhile, mostly if you rather someone else handle any post-identity theft paperwork. But you’ll want to know what you’re buying. The NAIC recommends taking the following steps when vetting identity theft insurance policies:
Know your limits. Most identity theft policies cover up to $10,000 to $15,000 in identity theft recovery-related expenses, NAIC says.
Ask about a deductible. It’s common for policies to require you pay the first $100 to $500 in expenses associated with reclaiming your identity.
Find out what caveats apply to coverage of lost wages and legal fees, specifically. Salaried employees with paid vacation or sick days are often not eligible for recouping lost wages, while some insurers require pre-approval for legal fees, NAIC says.
Remember, whether you’re looking for identity theft insurance, renters insurance, life insurance or more, it’s important to comparison-shop before settling on a policy. Our Geniuses can help you compare quotes and finding the best insurance for you. You can take our Insurance Checkup to get started.