Should you buy identity theft coverage from your home insurer?
It can’t prevent fraud, but it can help you recover from the damage
Writes trendy stories about credit cards.
Homeowner’s insurance generally covers damage to your house and theft of your belongings, but it can’t guard you from identity thieves.
However, some home insurers go an extra step with their protective umbrella by offering identity theft insurance. In most cases, this coverage is added through what’s called a rider or endorsement, and the cost is tacked on to the premium you already pay for traditional home insurance.
But should you even purchase identity theft coverage through your home insurer if it’s not already included? Is it actually worth it, given that there are free identity theft safeguards available from credit bureaus and some card companies?
And if you do buy identity theft coverage through your home insurer, what are you getting in return for your money if your identity is stolen? Also, what are the alternatives to coverage purchased through your home insurer?
Before buying identity theft coverage from your home insurer, know what you're getting
Not a preventive measure
Identity theft expert Carrie Kerskie makes one thing clear about this kind of coverage: It doesn’t prevent a cybercrook from stealing your identity, whether it’s your Social Security number, credit card numbers or other personal data.
“Preventing identity theft is impossible. While you can take steps to reduce the risk of specific types of identity theft, there is no way to stop it completely,” Kerskie said.
Insurance experts stress that this insurance does not cover financial losses you’ve incurred as a direct result of the theft, such as unauthorized purchases. Instead, identity theft coverage helps restore your identity or otherwise recover from the fraud, Kerskie said.
“Think of it like car insurance. You don’t buy car insurance to protect you from having an accident. You buy it so the problem will be fixed when do you have an accident,” she said.
Get help with legal fees, wages lost, while repairing your identity
According to the National Association of Insurance Commissioners and the industry-backed Insurance Information Institute, identity theft policies differ from insurer to insurer and state to state. However, they say, some of the standard benefits might include:
- Assigning a consumer fraud specialist to your case.
- Replacing government-issued IDs, such as a driver’s license.
- Assisting with criminal charges, lawsuits or other proceedings related to identity fraud.
- Reimbursing attorney’s fees.
- Reimbursing lost wages while trying to repair your identity.
Most identity theft coverage pays for restoration of your identity up to the monetary limits of your policy, Kerskie said.
For instance, identity theft insurance sold by home insurer Allstate reimburses the costs to resolve the identity theft up to $25,000 for the “named insured” – the person whose name appears on the policy – and his or her spouse, spokesman Justin Herndon said. At another insurer, Liberty Mutual, the coverage limits are $15,000 per incident and $30,000 per policy period (usually one year).
Normally, coverage sold by home insurers costs as much as a few hundred dollars a year.
Home insurer Progressive, for example, sells identity theft coverage provided by credit bureau Experian and supported by ConsumerInfo.com, an Experian company. This coverage starts at about $120 a year.
At Liberty Mutual, identity theft coverage can be added for $35 or less per year, whereas home insurer Nationwide charges $45 a year and competitor State Farm charges $25 a year.
Keep in mind that some insurers require payment of a $100-$500 deductible, which is subtracted from any reimbursements you get, the National Association of Insurance Commissioners says.
According to Kerskie, identity theft restoration typically is carried out by a company “preferred” or approved by your home insurer, or by a company you may hire on your own. If you go the third route, then you’ll typically pay the initial expenses out of your own pocket, and then be reimbursed, she said.
Experts’ opinions differ on value
Opinions are mixed as to whether anyone should buy identity theft coverage from a home insurer. That’s because a number of free options are available to help you combat identity theft, such as credit freezes, credit reports and identity theft services offered by card companies.
Mike Gulla, director of underwriting at home insurer Hippo Insurance, does recommend identity theft coverage as an add-on to your home insurance policy through an endorsement or rider.
“No one wants to be an identity theft victim. But just in case you find yourself dealing with fraud, you’ll want to make sure you have insurance,” Gulla said. “Most homeowners would agree that identity theft insurance coverage is necessary in case things get serious.”
While Bob Hunter, director of insurance at the Consumer Federation of America, doesn’t completely scoff at identity theft coverage, he does suggest that you approach this type of insurance very carefully.
If you decide to buy identity theft insurance, be sure to compare coverage and prices, Hunter recommends, and to ask about precisely what a policy will and will not cover.
Make sure it does the heavy lifting for you
Since you can’t prevent identity theft, it’s best to find an insurance plan “that does the work on your behalf when you become a victim,” Kerskie said.
How do you know for certain? Ask whether you’re required to sign a limited power of attorney when you buy this coverage, Kerskie suggests. If the answer is “yes,” then the provider will be doing at least some of the heavy lifting for you. If the answer is “no,” then you’ll be cleaning up the identity theft mess on your own, though you’ll reimbursed for the costs.
In the absence of a provider stepping in to do some or all of the dirty work, then identity theft coverage is worthless, Kerskie said
“It is like buying car insurance, but instead of the insurance company fixing your wrecked car, they send you a how-to instruction manual for you to do it yourself,” she said.
Gulla noted that without identity theft coverage, if a thief uses your credit or debit card number to make purchases or withdraw funds from your account, it’s up to you to contact each of your financial institutions to notify them.
If money is stolen from your bank account, you’re only liable for $50 if you report it to your bank within two days. But you could be responsible for up to $500 if you fail to act within that time frame. (And you could be on the hook for all of it if you wait more than 60 days.)
In most cases, you’re not responsible for monetary losses if your credit card number is used by a fraudster. Most cards from major issuers have zero fraud liability among their benefits.
There are ways to protect yourself for free
Of course, some homeowners might view identity theft coverage as a small price to pay in light of the financial toll that identity theft can take – U.S. consumers reported losses of $905 million in 2017 – and of the work it can take to bounce back from it.
“After someone steals your identity, getting your financial life back in order can take time. There will be phone calls you’ll need to make, packages you’ll need to send and documents you’ll need to replace,” Gulla said.
So, what if you want that sort of peace of mind but don’t want to purchase it from a home insurer? You’ve got options.
For example, some card companies, such as Mastercard and Citi, offer cardholders free identity theft resolution services. These can include expert assistance with fixing credit reports, filing affidavits and canceling compromised or fraudulent accounts.
Experts suggest considering these weapons for your identity theft arsenal as well:
- Credit freeze. This locks down access to your credit reports, making it harder for a fraudster to set up a credit card account in your name. As of Sept. 21, 2018, it’s free to freeze and un-freeze your credit report in all 50 states.
- Credit monitoring. This alerts you whenever there’s been a change in reports issued by any of the three credit bureaus. However, most credit monitoring packages are costly and they don’t prevent identity theft.
- Credit reports. You can get one free copy of your credit report from each of the three major credit bureaus – Equifax, Experian and TransUnion – each year at AnnualCreditReport.com.
Identity theft insurance can be valuable if you find yourself repairing damage wrought by a fraudster. However, if protection is your priority, it’s critical to weigh the value of insurance against other, less costly safeguards.
- Credit freezes are now free – but do you need one? – Credit freezes, which keep lenders and other companies from viewing your credit, are now free. We compared them to other credit protection tools, including locks and monitoring services. Here's how to use them all to protect yourself ...
- Employer credit checks: Who does them, how they work and what laws apply – If you're applying for a new job, a credit check could determine your fate, depending on the position and where it's based. Here's how they work and what to expect ...
- My card issuer of 25 years suddenly wants to know more about me – Under the Patriot Act, banks are required to verify the identities of their customers and maintain accurate information on them. But my bank's demand to know how I earn my income is an invasion of my privacy ...