10 Aug Is identity theft insurance worth the money?

Q. Is identity theft insurance worth the money? My kids are asking me if it is a scam.
— Mom

A. With all the data breaches we’ve seen, identity theft is a real risk for just about everyone.

We can understand why people might want the added safety promised by identity theft insurance, but it’s not that simple.

In most cases, identity theft insurance is not worth the cost, said Mitchell Feather of Creative Associates, a Madison-based cybersecurity and infrastructure consulting firm.

He looked at the options.

“You might find that your homeowner’s insurance offers low-cost identity theft insurance as a rider,” he said. “However, if you did go to make a claim, you could face policy deductibles and the possibility of a strike against you by the insurance company for making a claim.”

In the long run, he said the identity theft insurance could cost you more than your financial loss.

While there are many types of identity theft, the perpetrator often uses your information to open credit cards or a bank line of credit, Feather said. As such, laws generally limit your financial exposure to such fraud, he said.

Identity theft insurance typically offers you credit report monitoring, he said.

But you can have this done by subscription or for free from many credit card issuers or for free from some websites. All of these monitoring options will alert you to new accounts being opened and new addresses being registered, for example, he said.

Without such insurance, you can take your own proactive or reactive measures, he said.

These include locking or freezing your credit files with the three major credit bureaus and, in the case of actual ID theft, notifying all three bureaus of your identity theft.

One small caveat: most banks are very diligent when they see credit file locks/freezes and ID theft alerts, he said.

“But, unfortunately, there are some banks which go ahead and open accounts before doing a credit check – if at all,” Feather said. “But let me make this clear: it is only in your best interest to lock or freeze your credit files. You can always temporarily unlock/unfreeze your credit files should you have such a need such as getting a loan or credit card or making a major purchase.”

If you have the unfortunate luck of being a victim of ID theft, act swiftly, Feather said.

File an ID theft report with the Federal Trade Commission and your local police department, he said.

“Do not dismiss or underestimate the importance of doing this. With those reports in hand, you can dispute fraudulent credit information and have it removed from your credit reports,” he said. “It will also help prevent creditors from reporting fraudulent accounts. Should it come to pass, you can stop debt collection activities. Creditors are not allowed to turn over to debt collectors any debts incurred as a result of ID theft.”

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This story was originally published on Aug. 10, 2021.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.