Should You Purchase Identity Theft Insurance?

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More people are becoming victims of identity theft every day. One way to help combat this epidemic is to purchase identity theft insurance. 

Many insurance companies today offer this product to help ease an individual’s anxiety concerning identity fraud. However, this insurance product is really misunderstood due to the coverage that is available.

Basic Coverage

Insurance coverage for identity theft insurance does not reimburse individuals for any monetary losses that occur that result from identity fraud. This is somewhat confusing to the way that regular insurance policies pay for damage to a home or automobile. However, policies for identity theft are in fact a form of insurance.

Standard automobile insurance requires a deductible and will cover damage that occurs from accidents that are unforeseen. Identity theft insurance does not pay the cost a consumer may face to help fix their identity when they are victimized.

The insurance that is purchased for identity theft will generally offer payments for basic expenses, such as lost wages, phone bills, and attorneys’ fees. There are also various companies that will provide restoration services, but these will not be insurance companies. The use of restoration services will assist victims through the restoration process for their identity.

Obtaining Insurance

Consumers have many options available for obtaining insurance for identity theft or fraud. Policies are often available from credit card companies, insurance companies, credit unions, banks, and many other financial institutions. This also includes credit bureaus and identity theft protection companies. A good option that often has little cost is to obtain identity theft protection from a credit card issuer.

Most renters insurance policies and homeowners will cover cash thefts up to $300 and $50 for the loss of credit cards. However, the epidemic of identity theft has led to identity theft protection added onto a homeowners policy. A consumer can often add identity theft coverage to an existing policy. The cost is typically less than $50 per year.

How Coverage Works

The expenses a consumer incurs when attempting to restore their identity will be reimbursed if there is an identity theft insurance policy in force. The payments that are made will be up to the limits listed on the policy. Consumers can often have coverage that ranges from $10,000 up to $1 million or more.

The most important aspect to keep in mind about insurance coverage for identity theft is to review coverage terms. Marketing claims that are made for coverage limits, such as $1 million, may not always apply if specific exclusions apply. This means taking time to understand the policy terms and reviewing the fine print.

Important Considerations

Many identity theft protection policies often offer additional services. Consumers may get assistance if they need help to resolve the problem. One thing to keep in mind is a policy will not reduce the time to deal with the hassle that will be required to rectify the situation.

Most insurance policies have some form of deductible that applies. Insurance companies will often use a deductible as a means to limit payout amounts. A consumer should not be surprised to discover that a $500 deductible is common for identity theft coverage.

If the total cost to restore a consumer’s identity is less than the deductible, then insurance coverage will not apply. The average amount that consumers will pay out-of-pocket when identity theft occurs is about $630 per incident.

Additional Coverage

Policies issued for identity theft often pay for certain legal expenses and lost wages. However, the total amount of coverage may be limited or approval may be needed before coverage applies.

One thing that should be known about lost wages and legal expenses is these can be costly for a consumer. Any policy that includes this coverage will often have a higher premium, but the higher cost may be worth it when a consumer is out of work or has retained an attorney.

Additional Options

Consumers have many options at their disposal to protect themselves against identity theft. There are a variety of credit monitoring services that are available. One thing to keep in mind is these services will often cost $10 to $20 or more per month for each person.

Another aspect to realize is monitoring might only detect specific forms of identity theft. The reason is identity theft does not always mean that there is activity on a consumer’s credit report.

Consumers who want a lower cost option for identity theft protection is to review credit reports online for free. Another option is to consider applying a credit freeze. This will prevent anyone who steals the identity of a consumer to open accounts that require information from a credit report. One aspect about identity theft is thieves often use personal information to open lines of credit or apply for a selection of credit cards.

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