What is Identity Theft Insurance? Is it Worth It?
Table of Contents
- By Steven
- Published: May 21, 2024
- Last Updated: Jun 26, 2024
When a data breach happens, criminals may instantly expose millions of personal, financial, and medical information. They can then use that compromised data to break into other systems, help commit consumer frauds schemes, or be sold to the highest bidder. If that compromised information also contains personally identifiable information (PII), those exposed may fall victim to identity theft.
Identity theft insurance helps consumers prepare for identity theft. It offers many retroactive responses to identity theft, from helping with sourcing legal assistance to covering some of the unexpected costs that might appear after having your identity stolen. Identity theft insurance is an effective, reactive answer for when your information is compromised online or exposed in a data breach.
What is Identity Theft Insurance?
ID theft insurance is a financial safety net for victims of identity theft. Functionally, it works like typical insurance for homes, cars, boats, motorcycles, medical, and life. To that end, typical insurance providers usually offer ID theft insurance as a single or add-on service to their other bundles; the service can range from $20 to $80 per year, with providers offering various options as part of the consumer’s purchase package.
Consumers considering ID theft insurance should note that insurance does not stop or prevent identity theft from happening; it offers some financial assistance and professional referrals when applicable. To avoid identity theft, consumers should use caution when submitting their PII online and to organizations. They should consider removing their personal information from online outlets like data brokers and utilizing monitoring services to oversee their accounts when they cannot.
How Does Identity Theft Insurance Work?
As mentioned above, dentity theft protection works similarly to typical insurance but with differing aspects. Suppose, for example, a consumer’s PII (their Social Security Number, full name, birthday, residential address, account usernames, and passwords) were involved in a data breach. If they live in the right state, officials will notify them about the compromise between a week and a year after it happens, and in that time, their information could be sold or used in many ways. Their compromised data could be used as part of identity fraud, destroying their credit, reputation, and family status.
Consumers who suffer from identity theft must spend money to control the situation, including legal fees, identity recovery fees, and other expenses. ID theft insurance allows victimized consumers to recoup some of their lost expenses—although no insurance typically covers the loss of liquid funds. If the victim pays to have their identity’s status restored or is looking to have it restored, they might use their ID theft insurance. The insurance will provide limited funds to the victim, assisting them with expenses where qualified.
What Does Identity Theft Insurance Cover?
ID theft insurance differs between members and organizations, as with all insurance services. Some insurance covers the recovery of fees or lost wages due to identity theft. In contrast, others might offer childcare options or referrals to cybersecurity professionals to assist in recovering exposed data. The specific expenses and losses covered by a member’s policy are outlined within their service policy document.
Credit Application Fees
Suppose a criminal stole someone’s identity and used it to obtain access to their personal banking accounts, draining their accessible money to nothing. In this case, the victimized consumer might turn to credit cards until they recover from the losses. Credit applications, payday loans, and other types of financing lines may be covered by insurance.
Legal Fees
Suppose a criminal stole someone’s identity and used it to avoid having a warrant or other criminal activities attached to their name. In this case, the victimized consumer might be pulled over for a broken tail light and subsequently arrested. ID theft insurance can help cover those legal fees, including those incurred by legal representation, the court, audits, and even government hearing agencies.
Other Financial Institutions Fees
Fees incurred after an identity theft are most commonly covered by ID theft insurance; these can be fees related to breached accounts, obtaining refunds from rejected loan applications after the victim’s credit is significantly damaged, reimbursements following concrete company or organizational negligence, or other fines and entitlements related to the theft.
Lost Wages
Suppose a criminal stole a freelancer’s identity. A freelancer’s work, livelihood, and prospects are intricately connected to their identity, particularly when starting in their given field. A criminal misusing a freelancer’s identity can result in lost wages, particularly if the fraudster maliciously works to reach that end. ID theft insurance can help ease these situations, offering a safety net of funds for consumers (and freelancers).
Child Care
Some identity theft insurance also provides options for personal assistance following an incident; this type of coverage grants parents and guardians funds to receive child care while they combat the consequences of ID theft. However, depending on the policy, coverage for child care can be challenging to obtain.
How Much Does Identity Theft Insurance Cost?
As mentioned in the passages above, identity theft insurance can cost as low as $20 a month to hundreds yearly. Plans can come from insurance companies, ID theft protection services, or even credit card companies. They can include individual, couple, and family options, sometimes with nuanced protections for each member. Business owners may also have additional benefits available, but their policy would outline this. For everyone else seeking to obtain ID theft insurance, consider:
- What would be the policy limit? What has to happen to be eligible for coverage?
- Are there deductibles? If there are, how much are they, and when do they enact?
- If child care is covered, what are the nuances of that coverage?
- What paperwork must be prepared to trigger the policy after an event?
Benefits of Having Identity Theft Insurance
Identity theft insurance offers peace of mind and financial protection to those whose PII may be victimized by criminals in future fraudulent activities. Policies function in a reimbursement format, offering victimized members a net of funds to recoup some of their (presumed) losses. Policyholders are benefiting from the insurance at such rates, that ID theft insurance will soon become a necessary aspect of life online and cybersecurity.
- Suppose a person’s identity was compromised in a data breach a year ago, and they never even knew it happened. They’re being sent collection letters from the IRS, even though they’ve already paid their taxes. Failing to pay the IRS isn’t an option because they’ll hit the account with additional fees. With ID theft insurance, the victim can pay the IRS and have peace of mind that they can still pay their rent.
- Suppose someone’s wallet was stolen at a cafe; consequently, criminals sold their information on the dark web. Now, they’re not being offered employment opportunities, and their friends aren’t talking to them. ID theft insurance can help uncover why they aren’t being contacted, offer a stipend for lost wages, and assist in reputational recovery.
- Suppose a traveler’s essential documents were stolen during a festival, and the thieves misused them immediately, winning the victim a spot on the authority’s list. Two days later, they’ve got to go home but have issues boarding. They may need to pay notary fees, long-distance phone call fees, postage costs, or new document fees—but they’ll get home. And once home, ID theft insurance can reimburse them.
Limitations of Identity Theft Insurance
However, identity theft insurance isn’t a solution for all personal and cybersecurity. There are exclusions and limitations to these insurance policies, which the provider should outline within the policy agreement:
- Coverage caps: Most insurance providers will offer predetermined coverage amounts, which a member’s benefits cannot exceed.
- Exclusionary incidents: Many policy agreements will list exemptions to benefits, such as if the policyholder directly released their information to the public.
- Deductibles: Policy agreements may require a portion of the coverage to be used before the insurance will activate. These deductibles vary but are typically in the hundreds.
- Stolen money: Most policies will not reimburse an identity fraud victim if the damages only include stolen funds; however, some insurers provide this option.
Choosing the Right Identity Theft Insurance Policy
There are countless types of identity theft schemes, and knowing which ones are most likely to hit a consumer personally and professionally can be the difference between falling victim and full mitigation; with this pressure, choosing the right identity theft insurance provider (and policy) can be challenging. However, individuals can adequately prepare by finding the perfect policy should their identity information be compromised.
To find the right ID theft insurance provider, consumers must assess their needs and the needs of their family or organization; they’ll need to research and compare policies from multiple providers, considering policy response time, reviews, and deductibles; and they’ll need to decide the scope of coverage needed for their activities. Whether that means they’ll need full coverage because they’ve had multiple significant exposures or partial coverage, just in case they catch a stray hit from a data breach.
In 2023, the Federal Trade Commission received over a million identity theft reports online, with an average median loss of $7,000 per incident. ID theft insurance seeks to ease the burden of these losses, but it can only help if consumers purchase it before it’s needed. Individuals should seek to conduct their research, consult with insurance professionals, and find the policy that fits their specific needs and circumstances.
Identity theft insurance is quickly becoming a vital part of life, mainly as data breaches occur with more ferocity and impact than in the years past. It is a valuable option for those with limited disposable income, but it cannot protect you from falling victim to cybercrimes; the only way to do that is by limiting the amount of PII posted online, restricting the data shared with others, reinforcing the security measures of all accounts, and continue to learn about the threats we all face online every day.
