Identity Theft Insurance Policies: Are They Really Worthwhile?

While the threat of identity theft insurance is no doubt real, the issue has arguably become sensationalized beyond reality, thanks to overly enthusiastic reports on the fear-based evening news and the subversive advertising propagated by credit card companies themselves. Most victims of identity theft do not have their entire identities appropriated. The criminal party rarely opens new accounts, steals thousands of dollars, or wreaks irreparable havoc on the victim's credit report. Usually, just a single credit card number is co-opted - an annoying and serious situation, but an entirely manageable one. Still, to cash in on the American public's paranoid hoo-hah about identity theft, insurance companies are selling identity theft insurance policies.

This coverage may be included in homeowners insurance, renters insurance, or even a credit card's terms and conditions. It's possible that you may even have a policy without knowing it. However, thousands of folks who are frightened at the prospect of identity theft buy stand-alone policies directly from insurance companies. Are these identity theft insurance policies really worthwhile? My answer is: "almost never."

Let's look at them in depth. What do identity theft insurance policies actually cover?

One huge misconception is that identity theft insurance will cover any direct economic losses you incur. That's simply untrue. All that most identity theft insurance policies do is reimburse victims for the expenses incurred in "righting" the situation with banks, merchants, and other parties. In other words, the policy will make the process of reclaiming your identity less expensive. Coverage may include:

- phone calls and faxes
- postage
- photocopies
- notary public fees
- credit report orders
- lost wages for time spent handling the identity theft
- legal fees (for the few and far-between cases where an attorney is needed)
- cost of reapplying for loans that you were denied (as many people don't find out their identity was stolen until they are denied credit)

Most victims do not have their entire life co-opted by a criminal. Although ID theft is a serious matter, insurance is almost never a good investment.

Credit: sanja gjenero

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