What Does Identity Theft Insurance Really Cover?

by Miranda Marquit · 5 comments

We hear a lot about identity theft, since it’s a crime that can reach anyone, at any time. Even if they have flaws, services like credit monitoring can provide peace of mind.

And, if you’re worried about identity theft, there are companies that offer insurance against the costs you could incur. Before you pay for identity theft insurance, however, it’s important to be aware of its limitations.

What Will a $1 Million Policy Get You?

One of the numbers that’s often tossed out is $1 million worth of coverage. The first thing you have to realize, though, is that this doesn’t necessarily mean that your identity theft coverage will kick in.

Here are some of the the items to consider:

  • Much of the time, identity theft insurance only kicks in after other insurance pays out. So, you want to check your renters or homeowners policy to see what items are covered in relation to identity theft.
  • Payouts for certain items might be limited. You might be covered for smaller items, such as the cost of getting a credit report — but this is usually free if your identity has been compromised. Additionally, there might be a cap on what the insurance policy will pay in terms of lost wages.
  • In addition to limitations in what’s covered, you might need to jump through some hoops. For example, if you want compensation for lost wages, you might have to show that they’re due entirely to your efforts to fix your credit.
  • Attorney and court fees might not be covered up front, and this is the one expense you might really need help with. If someone uses your stolen identity to commit a crime, you’ll need to clear your name in a court of law. While identity theft insurance often covers these costs, you’ll only receive the money at the end of the situation — meaning you’ll have to come up with the money initially, even if you can’t afford it.

In the end, there are enough restrictions on identity theft insurance that it might not be worth the $15 to $20 a month. If you’re careful, identity theft insurance might be one of those policies that you don’t actually need.

While paying attorney fees and court fees would be difficult, chances are fairly slim that your stolen identity would be used to commit an actual crime — and that it wouldn’t be sorted out to some degree before things got too out of hand. Identity theft insurance might provide you with peace of mind, but, for the most part, you can probably handle most of the effects and costs yourself.

Do you have identity theft insurance? Why or why not?

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  • Kate says:

    I have one of the most common Anglo Saxon names in the world. In the small town in Atlanta where I used to live, there were three people with my name; one was a bank executive, one was a grifter and thief, and I was the third. We all routinely got each others’ phone calls and usually could direct the mistaken call to the proper person. Today I saw a “mug shot” of the grifter/thief on line, and was relieved to see that it’d be easy to prove I was not she.

  • Jo Mills says:

    It’s so important for everyone to make sure they are covered against identit theft. The risks are there to all and regular credit reporting and credit score tracking can certainly keep you ahead of those cyber criminals.

  • Shane says:

    I think if you manage your identity well there is no need for this type of insurance.

  • Bert says:

    I had my ID stolen a few years ago. I continue to suffer the consequences. From my viewpoint, having insurance is a waste of money. Any fraud will be alerted to as soon as the victim begins the laborious process to fix the credit record. Use Credit Karma for free self awareness, and hope this crime never happens to you. To this day, I am unable to acquire a business loan, or a decent job.

  • SirBrenton says:

    Thanks for sharing. The thought never crossed my mind that I could be held accountable for my stolen identity which was used to commit an actual crime. Crazy!

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