Identity Theft Insurance
- Review what you should look for in an identity theft insurance policy
- Check your credit report regularly or purchase credit monitoring services.
- Understand the difference between a credit freeze and a fraud alert.
Identity theft is a serious problem. According to the U.S. Federal Trade Commission, as many as 9 million Americans have their identity stolen each year. Not only can a victim of identity theft have bills run up on active accounts in his or her name and new accounts opened in his or her name, potentially creating a financial liability that needs to be paid or resolved, but a victim can spend time and money trying to straighten out the problem.
In response to this growing problem, insurance companies started to offer special insurance policies to cover losses resulting from identity theft. Policies vary in cost and coverage, so be a careful consumer if you are considering identity theft insurance.
Identity Theft Insurance Coverage
When shopping for an identity theft policy, look for coverage that includes:
- Repayment of any money stolen from you or your family. Most policies that cover this kind of loss place a ceiling on the maximum loss they cover.
- Compensation for lost wages, in case you have to take time off work to appear in court or take other steps to correct the problem. Most policies that cover this kind of loss place a ceiling on this type of loss, too.
- Reimbursement for costs you bear to mail or deliver important documents to correct the problem
- Reimbursement for any costs you bear for re-applying for loans
- Reimbursement for your costs to get documents notarized that you need to correct the problem
- Coverage for some of your legal fees that you may need to pay, if you have to hire an attorney to assist you in correcting the problem
- Coverage for costs for toll calls you may make in the process of correcting the process
Some policies do not cover all of these areas. For instance, there are identity theft policies that do not cover any legal fees or lost wages you may suffer when taking time to resolve the problem. Pay close attention the deductibles that come with any policy you review. Different policies have different deductibles, which affect how beneficial the policy will be to you. Importantly, none of the policies can protect you from becoming a victim of identity theft. It may make more sense to focus your efforts on preventing the problem from arising in the first place than on paying for identity theft insurance.
Check Your Credit Regularly
The most effective way to monitor the problem of identity theft is to check your credit report often. Check your credit report a minimum of once a year, preferably more often. You are entitled to one free credit report annually from each of the three main credit bureaus. Visit the Web sites of the three major credit reporting agencies (Equifax, Experian and TransUnion) or AnnualCreditReport.com. A good strategy is to stagger your requests at AnnualCreditReport.com, viewing a report from one of the three bureaus every four months. You can also call to request the report. If the report includes items that are inaccurate, request that the report be corrected. If you find fraudulent activity, contact the Federal Trade Commission to learn what steps to take.
You may also want to look into purchasing credit monitoring services. Credit monitoring services issue daily or weekly updates to any changes in your credit. This helps you recognize any problem early, minimizing the effects of identity theft by allowing you to take action before the damage is severe. Credit monitoring services charge a fee, so shop around. Some credit card companies offer low-cost credit monitoring services as an option to their cardholders.
There are two types of actions that you can take to prevent identity theft from happening to you at all, initiating a credit freeze and placing a fraud alert on your credit report.
A credit freezes blocks your credit report. When you freeze your credit report, not even you can open an account in your name. This clearly prevents anyone else from opening a fraudulent account in your name. A problem with a freeze is that it also blocks people you may want to access your report from viewing it, such as potential employers, lenders, or landlords. You can take a step to get the freeze temporarily lifted, but it has to be done in advance and there can be costs involved. Costs vary from state to state, but you may have to pay a fee each time you freeze and each time you thaw your report.
Placing a fraud alert on your credit report is free. When you place a fraud alert on your report, the alert is viewable by any creditor that views your report. When you have a fraud alert on your report, any creditor is supposed to take reasonable steps to verify that you are the one requesting an account be opened in your name. Because there is no clear rule on what steps a creditor must take to meet the standard of reasonable steps, there are times where creditors do not verify and fraudulent accounts can be opened. In other words, placing a fraud alert does not protect you fully from identity theft. If you choose to place a fraud alert on your report, you should still be diligent in monitoring your credit report regularly.
Take prudent steps to protect yourself from identity theft. Monitor your credit report regularly, so you can take quick action to resolve a problem if it occurs. If you feel the peace of mind that comes from having an identity theft insurance policy outweighs the costs of the monthly premium, consider purchasing policy coverage. If the unfortunate happens and you are the victim of identity theft, make sure to take quick action to address the problem.