Like being struck by lightning, it’s easy to assume identity theft won’t happen to you.
Unlike being struck by lightning, identity theft affects more than 15 million people every year, and it’s as easy as someone obtaining your name, birth date and Social Security number.
Historically, thieves would steal something physical like a wallet to get your personal information. But as our lives and documents become increasingly digital, this is changing.
“We consider digital risks to be eclipsing physical risks, growing in both degree and complexity,” says Matt Cullina, CEO of CyberScout, a company that provides identity protection and data risk management services.
If you’d like to avoid becoming the financial equivalent of burnt toast, getting identity theft insurance may be a smart move.
Identity theft scams and how to avoid them
According to data from CyberScout’s Resolution Center, the most prevalent ID theft scams are:
1. Ransomware attacks
Hackers infiltrate computers or networks, lock them down and demand ransom in return for your data.
How to avoid it: Delete unverified emails without opening and never click links in them. Install software updates immediately when they’re available. Use your computer’s standard encryption to hide sensitive files from hackers and establish daily backups so data are preserved.
2. IRS phone scams
Someone who claims to represent the IRS calls about an unpaid tax bill. The person may threaten drastic action unless you agree to make a payment over the phone. Such callers will likely request your Social Security number, which they can then use to steal your identity and claim your tax refund. Or the threat may come via a phishing email.
How to avoid it: The IRS won’t demand a tax payment or request debit and credit card numbers over the phone. Always wait for an official letter from the IRS notifying you of an issue, or call the IRS directly to inquire about any taxes you may owe.
3. Endangered family member scams
Criminals use this tactic, also known as the “grandparent scam,” to prey on elderly people. In this scam, someone calls or emails pretending to be a family member — often a grandchild — in a dangerous situation. The person asks you to send money immediately to “buy” his or her safety.
How to avoid it: If you’re not sure whether the request is legitimate, tell the person you’ll call right back; the caller might just hang up. Attempt to contact the family member directly, verify the person’s whereabouts with another family member, or contact his or her school.
What is identity theft insurance?
Identify theft happens when someone uses your personal information to impersonate you, often for financial gain.
Identity theft insurance repays the money you spend to restore your identity, but it doesn’t typically reimburse money lost in the theft.
An identity theft insurance policy may reimburse you for expenses like:
- Copies of your credit report
- Notary fees
- Long-distance phone calls
- Bank fees
- Lost wages from work as you restore your identity
- Child care costs
- Legal fees
Identity theft insurance is different from identity monitoring services, which only look for signs of identity theft, according to the Federal Trade Commission. It’s also different from identity recovery services, which help repair the damage if your identity is stolen. These services are also called resolution or restoration.
Some identity theft insurance policies include monitoring for identity theft, but not all.
Ingrid Tolentino, CEO of Hyatt Legal Plans and a senior vice president with MetLife, says consumers today are searching for both proactive and reactive solutions.
Comprehensive identity theft insurance policies include reimbursement of expenses related to restoring your identity, credit monitoring services and access to a trained fraud counselor. These specialists may:
- Help you write letters to creditors and debt collectors
- Place fraud alerts and freeze accounts
- Guide you through document reviews
- Help you replace missing documents
- Talk to creditors or other institutions on your behalf
- Set you up with ongoing monitoring after fraud occurs
Regardless of your coverage under an identity theft policy, understand the deductibles, limitations and exclusions.
Where to buy identity theft insurance
|American Family|| |
|Liberty Mutual|| |
|MetLaw/Hyatt Legal Plans|| |
|State Farm|| |
Many major insurers offer identity theft insurance as an add-on to existing homeowners or renters insurance policies. You may also be able to get coverage — and access to legal counsel to put the pieces back together— as a benefit through your employer.
“People would rather go to the dentist than go see a lawyer,” Tolentino says. In response, MetLife recently added CyberScout’s credit monitoring and identity theft resolution service to MetLaw, its legal-services employee benefit plan.
Prices for identity theft insurance vary but are usually between $20 and $50 per year when added onto your homeowners or renters insurance policy.
Plans also are available from direct-to-consumer companies such as LifeLock and Experian.
Is identity theft insurance worth it?
Banks and credit card companies rarely hold consumers responsible for unauthorized charges or withdrawals, as long as you report the problem right away. Likewise, most homeowners and renters insurance policies provide some coverage when money or credit cards are stolen, but often with very low limits.
When it comes to identity theft, stolen money is often only the beginning of your worries. Thieves may use your personal information to:
- Establish phony insurance policies
- Open unauthorized credit cards
- Obtain unauthorized loans
- Rent an apartment
- Establish unauthorized utility accounts
- Get a job
- File taxes and steal the refund
- Expose your private life
Consequences of a stolen identity can include:
- Lower credit score
- Incorrect credit history
- Incorrect criminal history
- Higher insurance rates due to poor credit
- Difficulty qualifying for loans
- Stolen tax refunds
- Difficulty finding employment
- Exposure of sensitive personal information
- Theft of physical property
“It’s not just financial exposures, it’s your digital reputation,” Cullina says.
These long-term consequences, which can be very expensive to fix, leave many wishing they had a way to recoup costs and get expert advice. Depending on the policy, identity theft insurance can deliver both.