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Identity Theft Insurance: Is it for you?

It’s a new product for financial planners to sell, but how do smart Canadian Financial planners and financial advisors really feel about identity theft insurance? Read on as we summarize the comments they’ve shared with us.

With all the media coverage of identity theft – a crime that has affected 10 million victims in the US, according to some estimates – it’s no surprise that some insurance providers have recently launched new products aiming to earn a profit for consumers’ peace of mind over this new threat. New identity theft insurance, credit monitoring plans, and other services, are flooding the market regularly, often with dire warnings of what could happen if we don’t sign up. How do you know whether you should buy identity theft protection?

What is identity theft insurance?

Identity theft protection plans are a new type of “insurance” that claims to protect you from the costs associated with identity theft and the time-consuming process of cleaning up the mess left behind when somebody steals your identity. Credit monitoring, a related service, reviews your credit report at one of the three major credit reporting agencies and notifies you of any changes, such as a change in your address, new credit accounts in your name, or inquiries on your account, that might indicate a problem.

Should you buy identity theft insurance or credit monitoring?

First, keep in mind that many of the identity theft insurance plans and other related services are being offered by the same organizations that you have trusted to protect your personal information, such as banks and credit card companies. If you feel unsafe about how your personal information is handled by these institutions, should you be buying additional products from them? First, learn more about their policies for protecting your data (this information is often posted on their website).

Many consumer experts say that most people don’t need identity theft protection. Why? Identity Theft Insurance doesn’t reimburse you for money that is stolen from you. Some policies pay expenses such as lost wages (often capped at $2,000) and legal fees, but a lawyer is usually not required to resolve an identity theft case. The main requirement is your time in dealing with creditors to provide documentation and work out the issues. Even though some plans claim to cover the costs associated with resolving an identity theft case, the burden of dealing with creditors will still fall on you because most creditors won’t deal with anybody else.

Finally, identity theft is usually committed by someone we know, often family members, but identity theft insurance often doesn’t pay if the crime is committed by a family member, so you’re not protected against the thing that is most likely to happen.

As an alternative to spending your hard-earned money on identity theft protection insurance, take steps to prevent being a victim. Protect your social security number. Pay bills online instead of having them mailed to you. Shred documents that contain personal information. The old adage applies: an ounce of prevention is worth a pound of cure.