Identity Theft Insurance: It's Cheap, But Is It Worth It?

By Dawn Handschuh, Personal Finance Writer   

identity theft prevention and restoration

As an informed consumer, you're probably aware of the growing identity theft problem in America. The Identity Theft Resource Center has predicted that identity scams will only increase in 2009 as the slow economy gives scammers more opportunities to commit identity theft via job scams, check and credit card fraud and real estate-based scams.1

Should you purchase identity theft insurance to protect yourself? Many insurance companies offer affordable insurance protection as a rider that's attached to your homeowner's, renter's or auto policy. Some insurers even include identity theft insurance free, as part of your policy.

What's included and how much it costs depends on the insurance carrier.

State Farm Insurance, for example, offers Identity Restoration Coverage for an annual $25 fee as an optional endorsement to your existing homeowner's or renter's policy. If the policyholder becomes a victim of identity theft, here's what they'll receive:

  • Identity restoration case management service for up to 12 months for any covered identity fraud. A case manager works with affected agencies and institutions, including credit card companies, credit bureaus, creditors and businesses, on the insured's behalf to correct any covered identity fraud issues that the policyholder may have experienced.
  • Up to $25,000 in expense reimbursement for covered expenses, including:
    • The cost of obtaining credit bureau reports
    • Fees charged when reapplying for loans or credit
    • Phone, postage, and shipping fees
    • Notary and filing fees for costs incurred to correct their credit records
    • Certain legal fees resulting from identity fraud
    • Up to $1,000 for deductibles or service fees from financial institutions and other costs to recover control over the policyholder's personal identity, as part of, not in addition to, the expense reimbursement limit
    • Up to $5,000 combined for lost wages and child and elder care expenses as part of, not in addition to, the expense reimbursement limit

For the same price, Travelers provides similar reimbursements, with no deductible, up to $25,000 for identity theft repair-related expenses, including the cost of placing fraud alerts with all three credit-reporting agencies, and six months of credit monitoring. The policy will also reimburse lost wages up to $1,000 a week for up to five weeks, "reasonable" attorney fees as well as daycare and eldercare expenses.

The Fireman's Fund Insurance Company provides identity theft restoration services, $25,000 coverage and access to a personal counselor at no additional cost, and no deductible, for policyholders who have Prestige® Home Premier with Added Measure coverage.

Their services include:

  • Toll-free access to a personal advocate who works with victims one-on-one
  • Fast notification to relevant agencies
  • Arrangement of appointments with law enforcement
  • Ongoing credit monitoring and fraud alerts
  • Restoration of credit files, DMV records, government records and financial accounts

The Chubb Group of Insurance Companies offers complimentary access to its identity disaster response 911 service. The service emphasizes prevention of identity theft for victims of hurricanes, terrorist attacks or other catastrophes in which essential identifying documents, such as birth certificates, driver’s licenses, passports and Social Security cards, are lost. Chubb recognizes the difficulty disaster victims experience in recovering from their ordeal after quickly evacuating from their homes without these essential identifying documents.2

While identity theft insurance is quite reasonably priced and sometimes free, it can't prevent you from becoming a victim, nor does insurance reimburse you for money that was stolen from you. If you become a victim, the greatest burden is likely to be the amount of time it takes to work with creditors to straighten out your records and document that an identity theft did, in fact, occur. Creditors may refuse to deal with anyone but you, so you may be unable to assign responsibility for fixing the mess to someone else.

Most consumer advocates say that identity theft insurance is unnecessary. MarketWatch writer Chuck Jaffee called identity theft insurance a "stupid investment of the week."3

You might also consider that some of the financial companies that offer identity theft insurance for purchase are the same companies that have permitted identity theft to happen by failing to sufficiently safeguard their customers' personal information.

Footnotes

1 "What's Hot! ITRC’s Identity Theft Predictions for 2009," Identity Theft Resource Center, December 18, 2008

2 "Chubb Launches Identity Restoration Service," Identity Theft 911, November 17, 2005

3 "Stupid Investment of the Week," MarketWatch.com, December 5, 2006