What Is Identity Theft Insurance, and Is It Worth Buying?

Identity theft insurance can help restore your finances, but it can’t prevent the theft from happening in the first place.
Sarah Schlichter
By Sarah Schlichter 
Edited by Caitlin Constantine

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Identity theft affected more than 1.4 million Americans in 2021, according to the Federal Trade Commission

Federal Trade Commission. Consumer Sentinel Network: Data Book 2021. Accessed Nov 2, 2022.
, and some studies suggest that number may be higher. That’s why you might want to consider buying identity theft insurance.

What is identity theft insurance?

Identity theft occurs when someone steals 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.

Many major insurance companies offer identity theft insurance, often as an add-on to a homeowners, renters or other policy. It generally costs an extra $20 to $60 per year.

What does identity theft insurance cover?

An identity theft insurance policy may reimburse you for expenses like:

  • Copies of your credit report.

  • Notary fees.

  • Bank fees.

  • Lost wages from work as you restore your identity.

  • Child care costs.

  • Legal fees.

More comprehensive identity theft insurance policies may include other services such as:

Credit or identity monitoring. These services look for suspicious activity on your credit reports or in databases where your other personal information might show up. Although monitoring services can’t necessarily keep fraud from happening, they can alert you to problems early so you can take action.

Identity restoration. Many insurers will connect you to fraud specialists who can help you communicate with creditors, place fraud alerts on your accounts, prepare affidavits and replace lost documents.

Personal cyber coverage. This coverage can help you prevent or recover from cyberattacks. For example, you may be able to work with a specialist to restore lost data or better secure your home Wi-Fi network. (Some insurers offer cyber coverage separately from identity theft coverage.)

Reimbursement for stolen funds. Although most identity theft policies pay only for expenses associated with restoring your identity, some will also pay you back for money stolen from your accounts as a result of fraud.

Read your policy carefully or talk it over with an agent to make sure you understand what is and isn’t included. Ask about coverage limits and whether a deductible will apply. (A deductible is the amount of an insurance claim you need to pay yourself.)

Is identity theft insurance worth it?

Identity theft insurance may be worth buying, depending on your tolerance for risk and the work you’re willing to do if someone steals your identity. Below are a few factors to consider.

Check for existing protection

Before buying insurance for identity theft, check what other identity protection you may already have. For example, if you’ve been part of a large data breach, the company that failed to protect your information may provide free credit monitoring or restoration services for a certain period of time.

You might also have identity theft insurance or monitoring through your credit card, your employer or your homeowners or renters policy.

Consider do-it-yourself monitoring and recovery

Insurance policies and monitoring services can’t prevent identity theft; they can only alert you to the problem and help you resolve it. You may be able to take some of the same steps on your own.

One way to protect your data is to freeze your credit, which prevents anyone from accessing the information in your credit files. Learn how to freeze your credit.

If you don’t want to shell out for monitoring services, you can also check your credit reports and financial statements regularly, choose strong passwords and take other steps to prevent identity theft. And while identity theft insurance can provide access to specialists to help you resolve fraud-related problems, the federal government offers free recovery plans and advice at identitytheft.gov.

Evaluate the risk

Consider how much you could stand to lose if someone stole your identity. Banks and credit card companies rarely hold consumers responsible for unauthorized charges or withdrawals — as long as you report the problem right away. And a 2021 study by the U.S. Department of Justice (based on data from 2018) found that most victims of identity theft took a week or less to resolve their financial and credit problems

U.S. Department of Justice. Victims of Identity Theft, 2018. Accessed Nov 2, 2022.
. In fact, many were able to do so in a day.

That said, the same study found that a small percentage of victims spent six months or more struggling to recover their identity. Besides stealing money from your account, thieves may use your personal information to:

  • Establish phony insurance policies.

  • Open unauthorized credit cards.

  • Obtain unauthorized loans.

  • Rent an apartment.

  • Establish utility accounts.

  • Get a job.

  • File taxes and steal the refund.

  • Expose your private life.

You could end up with a lower credit score, an inability to qualify for loans or trouble finding a job. These long-term consequences, which can be expensive to fix, leave many people wishing they had a way to recoup costs and get expert advice. Depending on the policy, identity theft insurance can deliver both.

Where to buy identity theft insurance

Many major insurers offer identity theft insurance as an add-on to homeowners or renters insurance policies. Some, such as Chubb, may include a limited amount of coverage for free.

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.

Finally, you can check out direct-to-consumer companies such as LifeLock and IDShield.

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