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