Posted on May 2nd, 2012
You might think it can’t happen to you, but it happened to 11.6 million American adults last year alone.
In 2011, reports of identity fraud were up 13 percent from 2010. This increase might have you wondering if you should start paying for identity theft insurance. But is it worth it? Let’s take a look at the ins and outs of identity theft insurance.
What is identity theft insurance?
Identity theft insurance typically covers some of the expenses you’ll incur after becoming a victim of identity theft; in other words, identity theft insurance helps with damage control. Plans and coverage can vary, and usually helps pay for some legal bills and other expenses incurred during the recovery process after identity theft. It will not, however, reimburse money lost or stolen due to identity theft.
Identity theft insurance can cost $120 to $300 a year, sometimes at a monthly payment plan. Most policies have limits of $10,000 to $15,000, and come with a deductible as high as $500.
Why might you need it?
Recovering your financial life after identity theft can be costly and time-consuming. You’ll have to dispute any unauthorized accounts with the credit bureaus, get a new social security number, and possibly take legal action.
Identity theft insurance can help alleviate some of that pressure by reimbursing you for part of the costs you’ll incur.
Why might you NOT need it?
Identity theft insurance helps after you’ve already been victimized; it doesn’t recover any stolen money or guarantee that you’ll be able to rebuild your credit if it takes a hit. There are other options to help protect you from identity theft before it happens at little or no cost:
- Enroll in free credit monitoring, which checks your credit report daily for important changes. Credit Karma will notify you via email if one of those changes occurs. You can also check your free credit score regularly to watch for irregular fluctuations.
- Check your passwords. One of the best ways to protect your current accounts is to make sure that all of your passwords are unique and secure. Try a service like Last Pass, which keeps all of your log in information in a password-secured vault. It can also generate new, secure passwords for you.
- Monitor your accounts. Simply being aware of what’s going on in your financial life can help you protect yourself. Stay up-to-date by logging into your online financial accounts on a regular basis and reviewing each transaction to make sure it is accurate. Also, remember to always use your own, secure internet connection. Accessing your personal accounts on a public Wi-Fi hotspot leaves them more vulnerable to a hacker.
- Shred your documents. Thieves sometimes resort to rummaging through trash and recycling bins for sensitive information. Make it hard for them by investing in an inexpensive paper shredder.
- Put an initial fraud alert on your credit. A fraud alert on your credit report will ensure that any lender or creditor attempting to pull your report will contact you to verify before doing so. You can stop any unauthorized access of your credit before it happens. Find out how to place an initial fraud alert.
Bottom Line: Ultimately, it’s up to you whether or not it’s worth it to purchase identity theft insurance. First, use some of the above suggestions for a do-it-yourself approach. Then, before you seek out an independent policy, which can be expensive, check with your credit card issuer or even your bank. Some financial institutions offer identity theft insurance as an add-on to their other services. Your homeowner’s insurance policy might even come with identity theft insurance as an add-on. Lastly, shop around for an affordable policy with a low deductible.
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