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Benefits of Identity Theft Insurance

Identity Theft

Identity theft insurance is a way to try to mitigate some of negative consequences of identity theft. Before deciding on the merits of identity theft insurance, it's instructive to understand what the coverage offers - and what it doesn't - and at what cost.

What Identity Theft Insurance Does Not Cover

Unlike other kinds of insurance policies, identity theft insurance does not cover actual financial losses as a result of the actions of an identity thief. So if someone makes $1,000 in fraudulent charges on one of your credit cards, the insurance does not pay that $1,000 to the credit card company. This makes sense, however, because of state and federal laws that generally limit any fraudulent losses to a maximum of $50. Instead, identity theft insurance focuses on the expenses related to canceling and reopening accounts and getting your credit picture back to its proper place.

Cost of Identity Theft Insurance

Identity theft insurance is generally quite inexpensive, according to insurance experts, about $20 to $60 a year for that might vary between $15,000 and $25,000. However, the first step in the entire process involving identity theft insurance is to determine if you are already covered. Coverage for identity theft is included in many homeowner's policies. If you don't have identity theft insurance, you often can add it to your existing homeowner's policy.

What Identity Theft Insurance Covers

This varies slightly from company to company, so it's extremely important to understand the policy terms, according to insurance experts. Most policies covers any out of pocket costs associated with your effort to restore your credit following identity theft. That can include lost work time, but it's important to know what proof is required - such as a police report or identity theft report from the Federal Trade Commission. Another key element with identity theft policies is the deductible. A common deductible is $250 or $500, but experts say the average out of pocket loss from identity theft - the amount spent to cancel accounts and deal with credit reporting agencies - is just under $500. So it's important to decide whether to pay more for the policy and opt for a lower deductible or keep a $500 deductible and rely on identity theft insurance in the event your experience involves an unusual amount of out of pocket expenses.

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