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Should you get identity theft insurance?

Identity theft is one of the most common crimes in the United States. Between 2005 and 2010, 8.6 million households had at least one family member age 12 or older fall victim to an identity theft crime, according to the latest statistics from the Bureau of Justice Statistics. Over three quarters of these victims suffered a financial loss as a result of the crime. In 2012, such crimes accounted for more than $21 billion in losses, according to the “2013 Identity Fraud Report,” released by the consulting firm Javelin Strategy.identity theft insurance

If you’re worried about falling victim to identity theft, you may be able to get insurance coverage to protect you. How does it work, and is it worth considering?

Here’s a look at your options.

What is identity theft?

Identity theft is any crime where someone makes use of your personal information, such as Social Security number, credit card numbers, bank account numbers and other details, to help them gain access to your finances or apply for loans or accounts under your name.

Close to half of these cases occur when your wallet or purse is lost or stolen, according to statistics from the Insurance Information Institute, while some criminals steal personal data from Internet files and email accounts. Often, it takes a long time for victims to realize their security has been breached—and in such cases, they’re likely to lose significantly more: The Javelin report found that victims who didn’t discover the identity theft until at least six months after it occurred lost 400 percent more than those who discovered the theft immediately.

How to prevent identity theft

There are many precautions you can take to reduce your chances of falling prey to an identity theft criminal. These strategies include:

Reducing the amount of personal information you carry with you to the bare minimum. Keep checkbooks, credit cards, ID cards and other items you don’t need on a regular basis in a locked safe.

Only purchase goods online from sites with the secure prefix “https://” rather than “http://”. If you’re still concerned about a site’s authenticity, contact the site’s owner before proceeding, says Loretta Worters, vice president for the Insurance Information Institute.

Don’t share your Social Security number, bank account details or other secure information over email or text message.

Create unique secure passwords for every online service you use, and change them frequently.

Sign up for online accounts with your bank and credit card companies, and monitor your purchases frequently. You can set up alerts for notifications if your credit cards are charged above a threshold that you’ve specified.

Insurance for identity theft

Still, no matter how cautious you are, you could still become a victim of an identity thief. In order to protect your assets, it may make sense to purchase an insurance policy or optional endorsement that will limit your liability in such a situation. The costs for such policies are generally quite low, though they vary based on the amount of coverage provided.

For instance, State Farm offers a $25 annual endorsement for home insurance policyholders. The coverage includes case management (negotiating on your behalf with credit card companies, banks, service providers and other affected parties), and up to $25,000 in reimbursement for expenses related to clearing your name, which might include legal fees, credit bureau report fees and up to $5,000 in lost wages.

At least a dozen other insurance companies also offer identity theft protection, either as an optional endorsement on a home insurance policy or as a standalone policy.

When it comes to choosing a policy, look over the details carefully to make sure that it’s providing enough benefits to help you if you need to file a claim. Consumer Reports points out that many identity theft insurance policies have gaps that could be expensive to fill: For instance, the $16/month American Express ID Protect Premium program will only pay costs associated with a criminal defense attorney after you have been proven innocent, leaving you to foot the bills in the meantime.

Such an insurance policy “can be a useful tool for consumers who have the means to purchase it, as long as they realize what they’re getting,” says Eva Velasquez, CEO of the Identity Theft Resource Center. “But they need to do their homework and make sure they understand what’s covered.”

Velasquez adds that purchasing such a policy doesn’t mean an individual should stop being responsible about monitoring for fraud. “Prevention and detection are better than remediation,” she says.

What to do if you’re not covered

If you’ve fallen victim to identity fraud but don’t have an insurance policy to protect you, don’t panic. You may still have protection from several sources.

Several home insurance companies, including MetLife and Grange, include some amount of identity theft protection at no extra charge on their policies. Look at your policy details carefully to find out if you already have protection.

If not, it’s possible you have coverage through your employer—a number of larger companies are offering identity fraud protection as an employee benefit. If you’re not sure, ask your HR representative.

If the identity fraud is related to unauthorized credit card purchases, the problem may be easier to resolve: Under the Fair Credit Billing Act, you are only liable for up to $50 if an unauthorized user makes purchases on your credit card. In any case, make sure to contact the affected businesses and agencies as soon as you’re aware of the unauthorized use, so that they can put a hold on the credit card or account and begin an investigation.

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