Necessary Coverage or False Sense of Security?
What Is Identity Theft Protection?
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 are failing to protect your personal information, such as banks and credit card companies.
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 $2000) 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. Opt out of credit card offers to reduce the chance that an offer could be stolen from your mailbox or trash and used to set up an account without your knowledge (call 888-5-OPTOUT).
Instead of paying for credit monitoring, do the monitoring yourself by ordering copies of your credit report from all three credit bureaus (Experian, TransUnion, and Equifax) several times a year, and review them carefully. There can be signficant differences between your reports at the three bureaus, depending on which bureau each of your creditors report to.
If cost is an issue, you have a free option that is the second-best way to monitor your credit accounts. By law, you can now obtain a free copy of your credit report once a year from each of the three major credit reporting bureaus. Order a free copy of your credit report from one of the big three credit reporting bureaus. Four months later, order a free copy of your report from another of the three credit reporting bureaus, and four months after that, get a free copy from the third credit reporting bureau. This way, you get a free copy every four months. Review the reports carefully for any unexpected activity or accounts you don't know about.
If you do find something suspicious and you think you may be a victim of identity theft, place a free 90-day fraud alert with one of the credit reporting bureaus. They're required by law to notify the other two bureaus. A fraud alert warns potential lenders to contact you before granting credit in your name.
Your homeowners insurance policy may already cover you for identity theft protection. Check your policy to find out.
If you do decide to buy identity theft or credit monitoring services, be sure you know exactly what you're getting for your money. To put it in perspective, multiply the monthly cost of the coverage times 12 to find the yearly cost, then evaluate exactly what you're getting for the money. Is it worth it or is it just providing a false sense of security?