Identity-Theft Insurance: Why You Don’t Need It
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Actually, I never knew such thing as identity-theft insurance till today when I read an article on MarketWatch.com, which named ID theft insurance "Stupid Investment of the Week." Though a little surprised, it isn't that hard to imagine why such products exist: there must be demands. After all, we insure everything deemed valuable: life, health, home, car, and pets. And since we care so much about our identities (the article says The Federal Trade Commission estimates that more than 9 million are victims of ID theft every year), getting a protection makes sense. But do we really need a policy for it? The author of the MarketWatch article declared ID thety insurance "will provide minimal extra protection and could be a hassle to open during a storm."
For the ID theft insurance, the article quoted the National Association of Insurance Commissioners as
… identity-theft insurance won't protect you from becoming a victim any more than fire insurance would stop your house from burning down and "does not cover direct monetary losses incurred as a result of identity theft."
So if the policy doesn't cover "direct monetary losses," what does it cover? Take a look at AIG's Personal Identity Coverage which provides the following services:
- Identity theft specialists are on call to guide individuals through the process of restoring their identity profiles and credit records.
- A guide, complete with form letters to send to creditors and bureaus, is provided to each identity theft victim.
- Coverage is provided for lost wages as a result of time off work related to a covered stolen identity event.
- Expenses related to the recovery of an identity, including defense costs for certain civil suits, re-filing for loans and reimbursement of fees are covered.
The Identity Theft Resolution Service from MatLife (with no additional cost to auto & homeowner policy holders) includes the following features:
- Direct assistance with filing police reports
- Assistance in placing fraud alerts with credit bureaus.
- Identification Recovery, which provides direct assistance with notifying governmental agencies should your documents be lost anywhere in the world or due to natural disaster or fire.
- A full year of active credit monitoring follow-up to ensure the thorough resolution of your identity for you and members of your household.
In terms of coverage, the AIG plan does offer reimbursement of lost wages due to time off from work to clean up the aftermath, and that's a big plus compared to the MatLife plan which only helps monitoring your credit for one year (is it because it's free for existing customers?). Just like any other products, different ID theft insurance plans give you different coverages and it's the details of what you will get in the event you need it that separate them (Go to Insurance Information Institute for a list of ID theft insurance providers).
At the end, the author noted that
A consumer who is concerned with identity theft would regularly check credit reports to look for unauthorized activity, would guard personal account information, shred documents with account numbers or any significant details, review bank statements and more. Those actions go much further towards protecting the consumer from identity fraud than insurance.
Indeed, you probably will be better off getting a credit monitoring service to prevent the identity from being stolen than trying to recover some loss after the damaged is done.
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What a unique and fascinating blog. (Or should I say diary?) I’m glad I stumbled across your site.
I’m with you 100% that identity theft insurance is a not worth paying for. And we are in good company- Consumer Reports and the Privacy Rights Clearinghouse, among others, agree.
However, I must disagree with your closing remark about credit monitoring: This too is also not worth paying for.
You can monitor your own credit for free by pulling your credit report once every four months from http://www.annualcreditreport.com. Also PayPal, in partnership with Equifax, are offering a free, basic credit monitoring service.
But there is a deeper reason to oppose credit monitoring: You should not be forced to pay to see your own credit report.
Credit reports frequently contain errors, even evidence of identity theft that can devastate your financial standing. The credit bureaus implicitly threaten to turn this information over to your business partners and employers unless you pay for access to your credit report to spot and correct these errors. In other contexts, such behavior might be considered extortion.
You can read my full indictment of the credit monitoring business in my article, Credit Monitoring Services are a Rip Off!
Again, great site and I’m glad to make your acquaintance. Keep up the good work.
Jeff
Hi Jeff:
Thanks for your comments. The reason I said credit monitoring service is better than an ID theft insurance is that with the former you can at least prevent some (definitely not all of them) fraud from happening. But with an insurance, what you get will be some compensations of already being a victim. And with credit monitoring service, what you get is not just a credit report but activities that about to happen under your identity.
As for the free credit reports, I have been getting a report every four months long before the credit report became available to everybody for free because as a NJ resident, I am eligible for a free report every 12 months from all three agencies. That definitely helps me on top of my credit.
I’m glad to hear this because I’ve thought about identity theft insurance before but wasn’t sure if it was worth the money. It looks like it’s not. Staying on top of your credit leads to sound financial decision making.
Jerry