According to the Federal Trade Commission, millions of people are victimized by identify theft in the United States each year. Service members may be especially vulnerable because of their frequent moves and deployments. Though the law does not hold victims responsible for debts incurred by identity thieves, victims are responsible for restoring their credit records, a process that can be time-consuming and expensive.
Many insurance companies offer policies to help cover the expenses victims often incur in the process of recovering from identity theft. In this article, you'll find information about identity theft and identity theft insurance.
Protecting yourself against identity theft
The Federal Trade Commission recommends a three-pronged approach to protect yourself against identity theft:
- Deter. Deter identity thieves by safeguarding your information. Never leave your purse or wallet unattended in a public place, protect your Social Security number and other personal information, and protect your personal information on the Internet. Be wary of email scams asking for personal information.
- Detect. Detect suspicious activity by routinely monitoring your financial accounts and billing statements. Check your credit reports at least once a year to be sure they don't contain erroneous information. You can order a free credit report once a year online at AnnualCreditReport.com or by calling 877-322-8228.
- Defend. Defend against identity theft as soon as you suspect it. If you find an error on your credit report, fill out an online dispute form through the credit bureau's website or send a letter with your suggested correction. The process of resolving a dispute or unraveling a case of identity theft can be complex and lengthy. If you get involved in this situation, be sure to keep detailed records of letters and conversations and be assertive about following up with everyone you contact.
Identity theft insurance coverage
Identity theft insurance policies are designed to cover out-of-pocket expenses related to restoring credit after identity theft. Policies may provide coverage for:
- Lost wages as a result of time taken off from work to deal with identity theft
- Notary and certified mailing costs for completing and mailing fraud affidavits and other correspondence with creditors or credit record companies
- Fees to reapply for loans that were denied because of incorrect credit information
- Phone charges for calling merchants, financial institutions and law enforcement agencies to report fraud and clear up personal records
- Attorney's fees
Identity theft insurance typically doesn't cover fraudulent credit card charges. Victims are responsible for settling these charges with their credit card companies and credit reporting bureaus.
Identity theft insurance costs
Though every policy is different, most companies that offer identity theft insurance through homeowner's or renter's insurance policies charge $25 to $75 a year for $15,000 to $25,000 of coverage. Some policies also have deductibles, which can increase overall cost. Companies that offer identity theft insurance as a standalone product may charge more, up to $200 a year.
The pros and cons of identity theft insurance
It's important to remember that identity theft insurance doesn't protect you from identity theft. An insurance policy can provide financial support and help recover your identity if you do become a victim, which, to many people, makes the policy seem worth the cost. Keep in mind, however, that law enforcement agencies investigating identity theft may refuse to deal with anyone other than the victim.
Identity theft insurance may be a good idea for people on a fixed income or who work for an hourly wage. They are the least able to sustain a loss of income for even a short period of time, and many insurance policies provide coverage for lost wages as a result of time taken off from work to deal with the aftermath of identity theft. However, these people are the least likely to become identity theft victims. People at high risk, including those who frequently travel internationally, earn more than $150,000 a year, keep high balances in a savings or checking account, or don't monitor their credit card statements and credit reports regularly, may also benefit from identity theft insurance.
You can find excellent, free advice about identity theft through the Federal Trade Commission and the Identity Theft Resource Center.
Selecting an identity theft insurance policy
Identity theft insurance is primarily offered in three ways:
- Through homeowner's or renter's insurance policies - Some companies offer it at no cost to policyholders, while others charge a small additional fee for identity theft coverage.
- As a standalone policy - You can buy identity theft insurance coverage directly from an insurance company.
- Through your credit card company - Credit card companies already offer credit protection plans and are beginning to offer identity theft insurance as an optional benefit to cardholders.
As you begin to compare policies, pay attention to the following:
- Expenses - Coverage of expenses may vary greatly from policy to policy. For example, some policies may provide coverage for attorney's fees in case you are sued, while others may not.
- Deductibles - A policy with a high deductible may not be worth the cost. Many experts believe low deductibles are more important than high coverage amounts, because it's less likely that you'll incur extremely high out-of-pocket expenses.
- Exclusions - Some policies may have exclusions that make them less useful than others. For example, some policies do not provide coverage for identity theft committed by relatives, though studies show relatives and family members are actually the most common identity thieves.
- Counseling services - Check to see if financial counseling services are available as part of the policy. Financial counseling is also available to service members and their spouses from their installation Personal Financial Management Program, Military OneSource, or military and family life counselors. Many victims find the emotional toll of identity theft even more distressing than the financial costs because they don't know how to restore their credit and clear their name. A counseling service can provide victims with helpful advice and information during a difficult time.
It's important to be aware of online risks and know how to avoid situations that make you vulnerable to identity theft. For more information about avoiding Internet scams and other Internet safety topics, check out these podcasts: Staying Safe and Secure Online, Avoiding Online Auction Scams, Avoiding Online Scams. If you are an older American and interested in targeted information about protecting your financial health, visit the Consumer Financial Protection Bureau's Financial Health for Older Americans.