What Is Identity Theft Insurance and Should You Buy It? – Technologist

Last year, the Federal Trade Commission (FTC) received more than 1 million reports of identity theft! And the AARP found that, “American adults lost a total of $43 billion to identity fraud in 2023.” So, it makes sense that — if protection exists against identity theft exists — you want it.

There’s no shortage of companies that promise protection against identity theft. Unfortunately, none of them can prevent your identity from being stolen. But identity theft insurance can offer some financial support if it happens to you.

In this article, you’ll find answers to identity theft insurance FAQs, including:

• What Is Identity Theft Insurance?
• What Does Identity Theft Insurance Cover?
• Who Needs Identity Theft Insurance?
• How Much Identity Theft Insurance Do You Need?

What Is Identity Theft Insurance?

If someone steals your personal information — like your name, social security number, address, credit card number, etc. — and uses it to impersonate you, then you’re a victim of identity theft. Identity theft insurance offers protection in the event that your identity is stolen.

Typically, people steal identities for some type of monetary gain. It used to be that fraudsters had to go through your mail, steal your credit card or cross paths with you to steal your identity. But technology has made it easier for criminals to get ahold of your personal information. From company data breaches to you clicking bad links in text messages or emails, thieves can get your info instantly and from anywhere in the world.

With this in mind, many major insurance companies offer identity theft insurance as an endorsement, or “add-on” coverage to your main policy. For example, State Farm offers Identity Restoration and Fraud Loss coverage as an add-on for people who have a homeowners, renters, condominium, manufactured home, or farm policy with them. You can check with your homeowners insurance company to see if a similar add-on is available. Regardless, there are also many companies that specialize in identity theft insurance.

But, if you lose lots of money because of identity theft, identity theft insurance might not guarantee you get that money back. Keep reading to see what identity theft insurance covers.

What Does Identity Theft Insurance Cover?

Before we talk about what identity theft insurance covers, let’s talk about one thing it might not cover. Most identity theft insurance policies don’t currently cover your money. Here’s what that means: If you lose part or all of your money due to identity theft, insurance won’t usually reimburse you for money you lost.

That’s important because there are some companies that advertise high coverage limits, but when you read the fine print, you learn it’s only for things that are likely to cost way less than what they’re offering.

Here are a few examples of what identity theft insurance typically covers:

• Bank fees
• Costs for new documents
• Credit report copies
• Legal fees
• Lost wages from work
• Notary fees

You will likely be reimbursed for other costs that arise directly because your identity was stolen and expenses you incur while working to repair the damages caused by identity theft.

Ultimately, however, what’s covered depends on your insurer and your individual policy. As always, it’s important to read the fine print of any policy you’re considering. Even if something is covered, there are almost always limits.

As an example, although legal fees are typically covered, different insurers may set limits on hourly rates. Aura — a popular identity theft protection company — states in its fine print a maximum for legal costs of $125 per hour. This might be on the low end when it comes to legal fees and can impact who you’re able to turn to for legal support.

Who Needs Identity Theft Insurance?

Unfortunately, predicting the likelihood that your identity will be stolen isn’t as straightforward as predicting the likelihood that a hurricane will pass over your home. To an extent, everyone is at risk for identity theft.

However, according to Equifax, some of us do things that raise our risk. Here are habits that Equifax says increase your risk for identity theft:

• You repeat passwords
• Your financial information is easily accessible (ex: you mail checks)
• Your Social Security card is in your wallet
• You’re too trusting of emails (ex: you click links without being certain that the sender is who they say they are)
• You don’t review your financial statements often
• You don’t check your credit reports regularly

If you’re guilty of one or more of the habits above, you might benefit from identity theft insurance.

Otherwise, a lot of what identity theft insurance offers can be done for free. For example, you can monitor your own credit regularly and freeze it right now for free. And many banks have alerts and fraud protection practices in place to let you know when something seems strange with your account.

How Much Identity Theft Insurance Do You Need?

The amount of identity theft insurance you need depends on what you’re hoping to protect. Let’s say your primary goal is to prevent thieves from opening a line of credit as if they’re you. In this case, you might not need any identity theft insurance.

Instead, you can take money expert Clark Howard’s advice and freeze your credit. “A credit freeze is the best way to protect yourself from identity thieves,” the consumer champ says.

But if your goal is to protect your money and assets, first remember this: most identity theft insurance policies don’t protect your money anyway. It’s more likely that a policy will pay for the costs associated with repairing damages brought on by identity theft.

If you find a company that does offer to protect your money, make sure the coverage limit makes sense! The more assets you have, the more coverage you need. Don’t, for example, pay for coverage that only offers $1,000 worth of reimbursement if your money’s stolen. Clark says:

“It needs to cover a meaningful amount of funds that you might have in a retirement account, or an investment account, or a bank account … So, if you are gonna carry this insurance, it needs to be a policy that has robust coverage of your assets.”

The exact dollar amount of coverage needed varies from person to person, depending on your assets. But Clark uses one million dollars as an example of good coverage.

Final Thoughts

Identity theft insurance cannot prevent your identity from being stolen. The best way to do that is to develop good habits around protecting your personal information. This means things like using strong passwords (no repeats!), being wary of unexpected emails or texts with links from unknown numbers and minimizing your debit card usage.

Regardless of your habits, however, even the most diligent amongst us can fall victim to identity theft. From data breaches to well-crafted phishing emails, sometimes the scammers get the best of us.

To decide whether identity theft insurance is right for you, ask yourself how much work you’re willing (or able) to do to stop the scammers. Most of what a typical identity theft insurance policy covers are things you can do for free by yourself. For example, coverage may pay for the convenience of having someone else place a fraud alert on your accounts.

You might find an insurer who offers coverage for your money too. Just make sure you read the fine print for things like coverage limits and exclusions to know how much of your money is covered and under what circumstances. Then go with a policy that makes sense for your needs and can meet your expectations if your identity is stolen.

Finally, if having identity theft insurance will simply give you peace of mind, then it’s worth considering.

The post What Is Identity Theft Insurance and Should You Buy It? appeared first on Clark Howard.