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Identity theft insurance isn’t likely to protect you from much financial loss.
In 2017, identity theft was the second-most-common complaint reported by consumers to the Federal Trade Commission. That’s a scary thought that might prompt you to start shopping for identity theft insurance. But in reality, individual consumers typically suffer little financial loss from identity theft — and correcting problems isn’t usually very difficult. Instead of wasting money on insurance, just know your rights and follow best practices to help safeguard your identity.
What is identity theft insurance?
Identity theft insurance — which you can purchase from major insurers, like Allstate, Liberty Mutual or State Farm, through an add-on to your property policy — covers expenses incurred to restore your identity. Although policies vary, typically you’d be covered for …
- Loss of wages
- Notary fees
- Certified mailing fees
- Public records searches
- Monitoring chat rooms and black market websites for information
But contrary to popular belief, these policy add-ons usually don’t pay for direct monetary losses, such as money stolen from your bank account. Policies may also cap your coverage if your identity is stolen, or may have deductibles requiring you to pay a few hundred dollars out-of-pocket before coverage kicks in.
How much does identity theft insurance cost?
Premiums for an identity theft insurance policy can range in price depending on where you live and how comprehensive the coverage is. Typical costs are around $25 to $60 per year, according to the National Association of Insurance Commissioners.
Identity theft insurance premiums may cost more than most victims are likely to lose
Since premiums are so low, you may think it makes sense to buy identity theft insurance just in case something goes wrong and your identity is stolen.
For most victims, however, there’d be no losses for insurance to cover. One 2015 report from the U.S. Department of Justice found just 13.8% of identity theft victims experienced any out-of-pocket losses at all — and just 6.1% experienced the indirect losses that identity theft insurance can cover. Of those who lost money, about half lost less than $100 total, while the median indirect loss was just $30.
Your low rate of out-of-pocket expenses is explained by laws capping direct loss, as well as rules designed to mitigate the impact of ID theft. As long as you report fraudulent transactions or stolen or lost cards promptly, maximum losses for bank account and credit card accounts are typically capped at $50 or less. And identity theft victims have various rights to ensure negative information caused by fraudulent actors is removed from their credit reports.
While resolving ID theft problems can take time, for most people the process is more of a headache than a disaster. In fact, the U.S. Department of Justice found that half of all identity theft victims surveyed took a day or less to resolve all problems — and just 9% took more than a month. Many people spent about seven hours total dealing with issues, which is hardly enough time to justify an insurance claim.
Knowing your rights is better protection than buying insurance
Instead of paying for insurance, spend a few minutes learning about your rights so you can respond if you fall victim to identity theft.
If you’ve been victimized, you have the right to …
- Obtain a free personalized recovery plan. You can report identity theft to the Federal Trade Commission. When you do, you’ll be provided with a free step-by-step recovery plan, including prefilled forms. You’ll also be provided with an FTC identity theft report.
- Dispute fraudulent information, have it removed from your credit reports, and prevent creditors from reporting fraudulent accounts. By providing creditors and credit-reporting agencies with a copy of your identity theft report from the FTC, you can check if negative information resulting from identity theft could be hurting your credit scores or marring your credit reports. Creditors have just four business days from the time they accept the identity theft report to block the fraudulent information from showing up on your record.
- Stop collections activities. Creditors cannot turn over debts incurred because of identity theft to collectors once you’ve provided them with an identity theft report, and debt collectors typically must stop trying to contact you once you’ve sent them a letter requesting they desist.
- Place a fraud alert on your credit that can last up to seven years. A free fraud alert can be placed with the three major consumer credit bureaus — Equifax, Experian and TransUnion. The alert makes anyone accessing your reports aware that you may be a victim of fraud or identity theft. If you place a fraud alert with any one bureau, it must notify the others. An extended fraud alert can remain in effect for up to seven years.
- Freeze your credit. This is a step beyond a fraud alert. When you’ve frozen your credit, no one — including you — can access your credit reports until you unfreeze it. Freezes can remain in effect until you unfreeze (but lift automatically after seven years in some states). Under a new law that goes into effect Sept. 21, 2018, credit bureaus will be required to let consumers freeze and unfreeze their credit reports free of charge.
These laws, combined with regulations limiting the losses of fraud that was reported in a timely manner, have made resolving identity theft problems relatively easy for victims — even without help that could have come from having an insurance policy.
Identity theft insurance usually doesn’t provide much monetary coverage. On top of that, you might not incur big losses if you’re a victim of identity theft anyway — so skip paying for a policy and take a few minutes to learn your rights. And since it’s typically easier to resolve identity theft issues when you catch the problem quickly, be sure to regularly check your credit reports and scores for any signs of trouble. One way is to use free credit-monitoring tools, like credit monitoring from Credit Karma. The service from Credit Karma can alert you when there are important changes on your TransUnion® or Equifax® credit reports, which can help you spot errors.
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