Identity theft insurance can help if you're victimized by fraud

Mary Lou Jay

The Bureau of Justice Statistics estimates that 11.7 million people were victims of identity theft in the two years before they were surveyed in 2008. Thieves use stolen information -- victims' names, birthdates, Social Security numbers and credit card numbers -- to open new credit card or utilities accounts, or even to apply for jobs.

The Insurance Information Institute reports that in more than half of identity theft cases, the losses of goods and services run less than $500. But in 10 percent of such cases, the victim's losses added up to $6,000 or more. The Bureau of Justice Statistics estimated losses at roughly $17 billion total for its 2008 study.

Repairing the damage caused by a stolen identity can be a time-consuming and expensive process. That's why several insurers have begun offering identity theft insurance policies. The cost of such coverage usually runs between $25 and $60 a year, according to the National Association of Insurance Commissioners.
Travelers Insurance was the first to offer a stand-alone ID theft policy in 1999. It provides up to $30,000 in protection against misuse of credit cards, debit cards, ATM cards and similar transactions for identity theft victims. It also offers some coverage for wages lost if the insured person has to take off work to resolve ID fraud issues.
Some carriers, such as Fireman's Fund, have basic and limited identity fraud coverage included in certain homeowner's insurance policies. Others, such as State Farm and Allstate, allow policyholders to buy optional identity fraud riders for their homeowner's and renter's insurance policies.

It's important to understand that ID theft insurance does not provide any prevention or monitoring service; it simply covers some expenses involved in rebuilding your credit after theft occurs.

If you're looking at buying ID fraud insurance, check the ratings of the insurer to make sure you're buying coverage from a reliable, well-financed company. Read the policy carefully and ask questions like these:

  • Is this a stand-alone policy, or do I have to carry other insurance with this company such as homeowner's insurance policy) to be eligible for coverage? Do I have any identity theft coverage in my existing policy? Can I add that protection through a rider on my policy?
  • What are the coverage limits of this policy? A NetQuote.com review of various insurers showed ranges from $15,000 to $30,000.) Does the policy provide coverage for actual losses such as money stolen) or only for fees and other expenses incurred while resolving ID fraud problems?
  • Do I have to pay a deductible? How much is it?
  • If the policy offers wage coverage, do I have to use up any available vacation time before the policy coverage will kick in?
  • Does the policy offer any other assistance such as a case manager) to help me straighten out the problems caused by ID theft?

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