What Is Identity Theft Insurance and How Can It Help Me?

Identity theft is when someone steals your personal information and uses it without your consent, including taking your money, opening new accounts or lines of credit, filing tax returns, and making health insurance claims. Identity theft insurance provides financial protection to victims. 

Coverage varies based on the provider, but the aim of identity theft insurance is to offer assistance and cover costs associated with the recovery process if your identity has been stolen. In this article, we’ll discuss what identity theft insurance is in detail and the advantages of identity theft protection.

What is the purpose of identity theft insurance?

The consequences of identity theft are profound and can leave lasting impacts on its victims. Imagine checking your bank account only to find it’s been completely cleared out. Or checking your credit report and finding an account number linked to an unknown credit card. When you research further, you find tens of thousands of dollars of credit card damages that are negatively impacting your credit. 

Identity thieves may take out loans, open additional lines of credit, or file tax information to receive refunds on your behalf. In extreme cases, criminals could use your identity to commit illegal behaviors. Your clean criminal record could be in jeopardy, and you could be at risk for legal consequences.

Proving that your identity has been stolen can be a long process, and reversing criminal charges, even unfounded ones, can be painstaking. If your identity is stolen, identity theft insurance can help cover the out-of-pocket expenses incurred with restoring your identity, like legal or administrative fees or remediation fees. 

Identity theft insurance may also help cover costs like copies of your credit report, notary fees, and bank fees. Identity fraud can be financially devastating and difficult to resolve. An identity theft insurance policy can help mitigate some of the effects.

What does identity theft insurance cover?

The most common effects of identity theft are fraudulent charges and damaged credit history. Depending on the type and length of the identity theft, the financial damage can be extensive, and legal aid may be required to recoup the losses associated with identity theft. Identity theft insurance can help shoulder some of the financial burden associated with recovering your stolen identity.

Basic identity protection plans cover the following:

• Fees associated with restoring your identity: Victims may need to use case managers or identity restoration specialists to recover the damages from their identity theft, and identity theft insurance plans typically cover those fees. Legal fees for hearings, judgments, and attorneys may also be covered.
• Document replacement: Replacing important documents, like a driver's license or Social Security card, is likely covered by basic identity protection plans.
• Lost wages associated with identity theft: Identity theft insurance can cover lost wages if you have to take time off work to resolve identity theft issues.
• Credit reports: You’ll want to keep track of suspicious activity on your credit history with all three credit bureaus (Experian, Equifax, and TransUnion). Identity theft insurance can cover the cost of requesting these additional credit reports.
• Child care costs: You may receive coverage for child care costs incurred by time spent resolving your identity theft issues.

Is there anything identity theft insurance doesn’t cover?

Typically, identity theft insurance only covers fees incurred after the theft has already taken place. For example, any fees that are associated with recovering your identity will likely be covered, but most identity theft insurance policies will not cover direct financial losses or fraudulent credit card charges.

However, many credit card companies do offer some fraudulent charge protection. Look into your preferred credit card’s terms and conditions to see how they handle fraudulent credit charges and stolen identity.

How much does identity theft insurance cost?

On average, you can expect to pay anywhere from about $7.00 to $40.00 monthly for an identity theft protection plan, depending on your plan and the level of protection you choose. On the other hand, an add-on policy to an existing insurance plan could range from $20.00 to $60.00 per year. We think identity theft protection is worth the cost.

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How do I know if I need identity theft insurance?

More sensitive information is being shared online than ever before. While that makes life more convenient in some areas, it also opens opportunities for more criminals to steal your identity. In 2021, identity theft affected 27 million people in the United States, totaling $28 billion in damages.[1] 

There are individuals who are more at risk of identity theft than others, but regardless of your digital footprint, identity theft insurance is an added measure of protection.

Cybercriminals are becoming more adept at stealing information virtually, but a little knowledge goes a long way. Five common types of identity theft include financial identity theft, medical identity theft, criminal identity theft, synthetic identity theft, and child identity theft.

• Financial identity theft: Fraudsters may steal from your bank account or use your credit card information to buy things. Criminals may also use your Social Security number (SSN) to open up bank accounts or new lines of credit.
• Medical identity theft: Criminals may get prescriptions for drugs, illegally obtain access to medical records, or obtain medical supplies or devices unlawfully.
• Criminal identity theft: Criminal identity theft occurs when someone is arrested and falsely gives the wrong name or identification.
• Synthetic identity theft: One of the fastest growing types of financial crime, synthetic identity theft, occurs when a fraudster uses the real information of someone else to create new identities. They may use personal data like your birthdate, address, SSN, and more.
• Child identity theft: Child identity theft occurs when a minor’s information is used to commit financial fraud, like opening a link of credit or line of credit.

In all of the above instances, identity theft insurance can help recoup and resolve some of the damages.

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Bottom line

Digitizing the modern world has made our lives easier in many facets, but it opens up our privacy and security in unprecedented ways. As more of our lives are moved electronically and more sensitive information is shared virtually, the number of criminals waiting behind a computer screen is ever-increasing.

Staying ahead of identity thieves requires many tactics, and an identity theft insurance or protection plan is a tool in your arsenal. Identity theft insurance can provide peace of mind knowing that if your identity is stolen, you have help recouping the losses and contacting the correct people.