Is Identity Theft Insurance Worth It?
October 30, 2013
Given that identity theft is becoming a more common problem, it was just a matter of time before someone would come up with an insurance policy designed to protect against it. It’s called identity theft insurance, and it’s a fairly new type of coverage.
What is it, and is it worth having? Here are some answers.
What is Identity Theft Insurance and How Does it Work?
This is a type of insurance that is offered typically by banks and credit card companies. Essentially they monitor your credit on regular basis (something you can easily do for yourself), and report any negative findings to you. This will be the signal to you that your identity has been compromised and you need to take action.
There are various monetary benefits that are available for the policies, however this can vary widely and is hardly uniform. There will usually be some form of limited benefit for lost wages due to the theft, as well as a fixed legal cost benefit.
What identity theft insurance typically does not do is reimburse you for any financial losses that you incur as a result of the theft. Since this is typically the largest expense (by far) related to identity theft, the fact that it is not provided largely invalidates the coverage for most consumers.
What Identity Theft Insurance Doesn’t Do
Though identity theft insurance will often pay you to hire an attorney to help with the problem, an attorney’s ability to operate in such a case is limited. Creditors typically will not talk to anyone other than you regarding matters concerning your credit, which leaves very little for an attorney to do.
For the most part, you’ll have to do a lot of work with the individual creditors yourself, and other than a small amount of money that the insurance company will reimburse you for lost wages, this will mostly be on your own time and at your own expense. In all probability, the cost of paying your insurance premiums will outweigh any benefit you’ll receive from the policy.
Identity theft insurance policies also typically come with a big limitation – the coverage will not be effective if the identity theft is an “inside job.” Very often, identity theft is perpetrated by someone who you know or is even in your own family. If that is the case, the coverage will be invalidated and of no use to you no matter how much you paid for it.
A Better Approach to Dealing with Identity Theft
Rather than taking an identity theft insurance policy – and living with a false sense of security – you are far better off taking a few commonsense steps that will reduce the likelihood of identity theft in the first place.
1. Keep identifying information out of sight.
Most of us are pretty casual about keeping sensitive information at home. Don’t be. As noted above, identity theft is often an inside job. A person close to you can gain a wealth of information about you by picking up a copy of your tax return, a bank statement, or a credit card statement that wasn’t properly filed. Any sensitive paper documents should be stored in a locked file cabinet.
2. Invest in a good shredder.
Now that we know that identity theft is a real and constant threat, you should have a good shredder in your home. Shred any documents that are beyond a certain age, or are not entirely necessary to be retained. Too many documents laying around the house – and even under lock and key – are a constant temptation to a would-be identity thief.
3. Pay your bills online, rather than through the mail.
Paper bills leave paper trails, and that makes a strong case for paying as many bills online as you can. Those paper trails – in the form of paper bills – are liabilities. While it is important to properly store them, and to destroy as many the possible, it is perhaps even more important to keep them to a minimum. Paying bills online will accomplish this.
4. Pay with cash wherever you can.
Sometimes we get too casual paying for everything with credit and debit cards. But each creates a paper trail, including one that extends to the merchant where you made the purchase. Very often, identity theft takes place in the places where we do business. An employee within the organization gets your information and runs with it.
But if you pay with cash, there is no paper trail – no identifying information. You can make your purchase, and then get on with your life, secure in the knowledge that the store – and its employees – will not have access to any of your information.
5. Buy only through trusted websites.
Some websites are set up for the sole purpose of identity theft. They get you to make a bogus purchase, collect all of your credit information, then sell your identity on the open market. Make sure you deal only with trusted online sites! You can also protect yourself with online transactions by buying with PayPal, so that no personal information is provided.
6. Monitor your credit.
Monitoring your credit report will not prevent identity theft, but it will alert you if there’s a problem before it gets bigger. This is especially important since identity theft often starts with a single credit entry. The thief isn’t as interested in getting money out of one of your accounts as they are in assuming your identity. Once they do, they’ll use your identity to begin obtaining credit, employment, and anything else your credit profile may be needed for.
As soon as you identify a single unknown credit issue, this is your tip to know that you need to get busy to take care of the problem before it gets even bigger.
These are all steps you can take for yourself, and you’ll be far more effective in helping yourself to deal with identity theft than any identity theft insurance policy might be.
Have you taken an identity theft insurance policy? Or are you considering doing so in the future? Leave a comment!
All posts by Kevin Mercadante
Thanks for sharing 🙂 It’s important to know You mail contains bank statements, account numbers, phone numbers and other important information many thieves search for. If a criminal can tell you are away from home, your mailbox can be a treasure box.
Hi Bill, Thats why we should all be doing as much of our business online as possible.
Mr. Mercadante:
Your article was well written and appreciated. Let me add some items for you (and your readers) to consider. I’ll try to keep them in line with your article’s numbering system:
1. Yes, everyone should do their best not to add to their personal identity theft potential by keeping a tight reign on their personal information. However, when you have situations like the recent Adobe breach and Experian actually selling complete credit profiles to a known identity theft service, that is not enough. Not to mention that your information is all over in places like land and tax records, the department of motor vehicles. Put plainly-your information is already available for those who want to use it.
2. This goes along with #1 above. Shred anything that has your personally identifying information on it. That includes junk mail. Also, if you are getting credit offers or credit cards in the mail – that is a huge red flag. You need to investigate.
3. I completely agree with this one. However, remember that the information you send (whether online or through the postal service) is being stored at the place of the organization you are paying. They have employees that are potential thieves and they have computer systems that are targets.
4. Nice idea but the practice of paying with cash has its own issues. Beyond the issue of possible losing a large sum of cash, you make yourself a target for mugging. And, if you do take this approach, be sure to get receipts for everything since you will not have that paper trail should you need to prove that you did purchase something on a particular date and from a particular place.
5. Good advice, but not foolproof. Possible data leaks can be anywhere from the device you are using to place the order to the vendor’s computers. And in-between with what is known as “man in the middle” attacks.
6. Monitoring your credit is important, but again not full proof. First, less than 20% of identity theft might be considered “financial” and thus possibly show up on your credit report. Second, you can only check one of the big three credit agencies one time per year. Since timeliness is critical to reducing the amount of time it takes to correct identity theft issues, it can take quite a while to see even a credit report red flag. Even one of the less quality identity theft protection products that gives timely credit report notifications can be far more useful and less expensive than doing it yourself.
Disclaimer: I work for an identity theft protection company and provide several different identity theft related products for clients.
By the way, your advice regarding attorneys is not quite accurate – it depends a lot on the service that you retain. For example, one of the policies that we provide assigns licensed private investigators to whom you provide a limited power of attorney, for the sole reason of acting as you legally to clear up problems like credit agencies and law enforcement agencies (that may have warrants for your arrest caused by the person pretending to be you). This means that they do the work and you don’t have to. No, that is not a standard policy that you usually see advertised on TV, but it real and your advice makes it sound as though what you see on TV is your readers only option.
Keep up the good work. There is a lot more I could add to this discussion since identity theft is such a big issue with many aspects (and so is protecting yourself from it), but I have to get back to work.
Hi Scott, as your comments confirm this is a complicated subject! There is no way to completely eliminate the threat of identity theft completely, and it is true that we are often swapping one potential for information exposure for another. Common sense is the best, first line of defense, with the understanding that no method is foolproof.