Estimates show identity theft is quickly taking over as the number one crime committed in the U.S. Some reports estimate that there are over 10 million victims of identity theft annually.
As a result, it’s becoming increasingly impossible to avoid the advertisements from companies offering to protect us from becoming victims, many of which include a story from an individual who suffered devastating financial consequences as a result of their experience.
How “Identity Theft Insurance” Works
The phrase “identity theft insurance” is in quotes because the companies (including insurance companies) who sell these services do not offer actual insurance against the money lost (damages) as a result of the identity theft itself, just the expenses related to restoring your identity.
This means if the thief spends your money, you do not get the actual money back. Some of the independent services (not insurance companies) may offer to pay you the actual financial damages you suffer…but be sure to get it in writing!
And don’t forget that there may be a deductible involved, which could cost you more than it would to reclaim your identity on your own.
What Does Identity Theft Insurance Cover?
As mentioned above, you do not get the actual money you lost returned to you; rather the costs associated with reclaiming your identity are covered.
Each company offers different services, but you can expect to receive coverage similar to that listed below:
1. Costs for re-filing applications for loans, grants or any other credit based instruments.
2. Costs for notarizing affidavits or other similar documents, long distance phone calls and postage…all of which will be necessary as you are trying to reclaim your identity.
3. Attorney fees are typically covered here, although the services of an attorney are rarely necessary for the process. However, it is possible to be named as a defendant in a lawsuit initiated by a company you now owe money to. Additionally, you may have lost a civil suit you were not even aware existed as a result of the theft as well, so the attorney’s fees coverage may come in handy here.
4. The cost to obtain a specified number of credit reports over a certain period of time. You can expect to be reviewing your credit at least monthly to determine if you are making any headway, and the credit bureaus will not allow you to do this for free.
5. Wages lost while spending time on the phone to clear the whole thing up may be covered as well. There are restrictions associated with the amount you can recover here. If the work could have reasonably been done in off-work hours you might be out of luck for some of it.
6. The costs for supervision of your children or an elderly dependent would be covered; subject to similar restrictions for number “5” above.
How Much Am I Covered For?
There will likely be an overall limit of financial recovery. Some of the services have unlimited coverage for “reasonable” expenses.
You might find you have a differing opinion of “reasonable” when it comes down to it, but it’s unlikely you’ll be treated unfairly.
If you purchase the coverage from an insurance company as part of another policy, you may expect a limit of $15,000-$25,000 or more.
Additionally, other “sub-limits” of coverage may exist.
For example, the total cost of daycare may not exceed $250-$500 per day or $5,000 in total.
What’s Not Covered by Identity Theft Insurance?
Again, what’s not covered with identity theft insurance may depend on whether or not you purchased the coverage from an independent service or your insurer, but there are some basic exclusions associated with these services.
Most of which should be obvious, but nonetheless, here goes:
1. Any fraudulent, dishonest or criminal act committed by the “insured” is not covered here. This includes acts committed to assist someone else in “stealing” your credit. Don’t roll your eyes here…it happens. Often when an “insured” wants some free stuff and decides they don’t want to pay for it.
2. Some companies may exclude theft of a professional or business identity (especially if the coverage is purchased as part of a personal homeowner’s insurance policy). If you want to cover the business, you need to purchase business identity theft coverage separately.
3. Losses “other than identity theft expenses.” This is the verbiage that excludes coverage for the actual money you lost.
4. The identity theft must have occurred prior to obtaining the coverage…again, don’t roll your eyes…many people try to get on board with this coverage after the fact.
5. There may not be any coverage if you do not report the theft within 60 days of its discovery or if you don’t file an official police report.
An Ounce of Prevention
Keep in mind that most victims of identity theft eventually discover they know the person who committed the crime.
Be protective of your personal information at all times…you never know when someone may attempt to use your identity to get some freebies.
Additionally, it’s a good idea to use a credit card versus a debit card, as many credit card companies will offer identity theft protection as a service to attract clients, meaning you won’t need to purchase identity theft insurance.
Your debit card on the other hand, does not typically offer this coverage. It is recommended you only use your debit card for ATM transactions to limit your exposure to this type of crime.