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Identity theft is a nightmare scenario. The last thing you want is to discover someone has stolen your identity by opening a new credit card in your name or using your Social Security number and identity for another fraudulent purpose.
That’s where identity theft insurance comes in. This coverage reimburses you for costs related to identity theft, including lost wages, attorney fees, and travel expenses.
Here’s what you need to know about identity theft coverage:
- Does homeowners insurance cover identity theft?
- What does homeowners identity theft protection cover?
- How to compare identity theft insurance
- How to get identity theft insurance coverage
- Average cost of identity theft coverage
- Pros of identity theft coverage
- Cons of identity theft coverage
- Ways to prevent identity theft
- How to report identity theft
- Should you consider homeowners identity theft coverage?
Does homeowners insurance cover identity theft?
Many homeowners and renters insurance providers offer identity theft coverage. However, it doesn’t usually come standard in your homeowners insurance policy. Instead, you generally must add it to your policy as an optional rider or purchase a separate policy.
What does homeowners identity theft protection cover?
What your homeowners identity theft protection covers depends on your insurance carrier. However, most insurers will cover some basic costs, including:
- Lost wages
- Travel expenses
- Legal expenses
- Replacement of government ID
- Notary fees
- Credit reports from credit bureaus
- Loan reapplication fees
- Access to a consumer fraud or identity theft professional
- Child care expenses
- Credit monitoring services
Limitations on identity theft coverage
While it’s important to understand what homeowners insurance covers, it’s just as important to understand what it doesn’t cover.
Homeowners insurance identity theft coverage has limitations. For example, an insurance provider may only provide up to $1,000 of reimbursements for certain expenses, or up to $25,000 or $50,000 total.
Homeowners identity theft coverage also won’t cover your actual losses caused directly by the identity thief. For example, if the theft involves someone using your credit card number to make purchases, your identity theft coverage won’t reimburse you for those expenses.
The good news is that doesn’t mean you’re out that money. Federal law limits your liability in cases of credit card theft. As long as you report the theft after someone uses your credit card, you’ll only be liable for up to $50 of losses. And if you report the theft before it’s used, you won’t be liable for any of the charges.
How to compare identity theft insurance
If you’re considering identity theft insurance, it’s worth shopping around to compare your options. Depending on your homeowners insurance carrier, this type of coverage may be available as an addition to your home insurance policy. Even if it is, you may also want to explore outside coverage, taking the following steps:
- Consider what it covers. The first thing to consider when comparing your options is what’s included. Some insurers may provide coverages that others don’t. For example, large expenses like lost wages, travel expenses, and child care expenses may not be available from all providers. And having those coverages can save you thousands of dollars.
- Ask about additional services. Some carriers may offer additional services after the identity theft has been resolved. You may have access to credit monitoring, social media monitoring, a credit specialist, and more.
- Compare prices side by side. When you’re shopping around for policies, compare prices for similar coverage from one insurer to the next. Keep in mind, it may be worth paying a bit more for superior coverage.
How to get identity theft insurance coverage
You can get identity theft insurance in a couple different ways. As previously mentioned, many homeowners insurance providers offer this optional coverage as a rider to home insurance policies. To add this coverage, just contact your homeowners insurance carrier and ask to purchase this in addition to your existing policy.
Another way to get identity theft insurance coverage is through a stand-alone policy, either with another insurance provider or through an identity theft protection service.
Learn More: How to Buy Homeowners Insurance
Average cost of identity theft coverage
The average cost of identity theft coverage is between $25 and $50 a year for $15,000 to $25,000 of coverage, according to the Insurance Information Institute.
The amount you’ll pay depends on what your policy includes. Generally speaking, the more comprehensive the policy, the more expensive it’ll be. Your premium may also depend on whether you purchased your coverage through a stand-alone policy or as an endorsement to your homeowners insurance policy.
Pros of identity theft coverage
Identity theft insurance has several perks, including:
- You can add identity theft coverage to your existing homeowners insurance policy, or buy it through another insurer, at a low annual price.
- This coverage can reimburse you for thousands of dollars in expenses related to recovering from identity theft.
- Identity theft coverage can provide important services if you don’t feel comfortable freezing your credit or monitoring your own credit.
Cons of identity theft coverage
Adding identity theft coverage can also have some downsides, such as:
- Some services that come with identity theft coverage could be done yourself, such as credit monitoring and freezing your credit files, so you could be paying for services you don’t need.
- Contrary to what it may seem, identity theft coverage pays for expenses related to recovering from identity theft, not money stolen from the identity thief.
- Identity theft coverage can’t completely prevent identity theft, nor can it prevent or repair the damage it can cause to your credit report.
Check Out: What Does Homeowners Insurance Cover?
Ways to prevent identity theft
While identity theft protection can help you recover from identity theft, it can’t entirely prevent it. But you can take steps to prevent (or at least reduce your risk of) identity theft on your own. Here are a few tips:
- Check your credit card statements. When someone steals your credit card, they’ll often make small purchases at first before pushing the limits further. Catching these small purchases right away can help avoid greater losses down the road.
- Freeze your credit files. Credit bureaus allow you to freeze your credit, which prevents new accounts from being opened in your name. It’s free to do and doesn’t affect your credit, but you’ll have to freeze your credit with each bureau separately.
- Monitor your credit report. You can request free annual credit reports from each of the three main credit bureaus: Equifax, Experian, and TransUnion. Additionally, many companies offer free credit monitoring, allowing you to quickly catch anything suspicious on your credit report.
- Hide personal information. Do your best to hide anything that has your personal information on it. For example, shred your mail, avoid carrying your Social Security card in your wallet, and don’t leave out documents with sensitive information.
- Be aware of scams. Phishing and spoofing scams are common ways that thieves steal your identity. They trick you into clicking on links and sharing personal information by disguising the message so it looks like it’s coming from a trusted company.
- Use strong passwords. Don’t make it easy for thieves to access your accounts on your computer or mobile devices. Use strong passwords and be sure to log out of sites and apps when you’re done using them.
How to report identity theft
Unfortunately, identity theft sometimes happens even when you take precautions to avoid it. Here’s how to report identity theft if it happens to you:
- Contact your financial institutions. You’ll want to contact your bank and credit card companies before anything else. These institutions can turn off access to your credit and debit cards to avoid further fraudulent transactions.
- Contact one of the major credit bureaus. Place a fraud alert on your credit report by contacting Equifax, Experian, or TransUnion. Whichever credit bureau you contact will notify the other two, so you’ll have a fraud alert with all three bureaus. When you have a fraud alert, companies must verify your identity before opening a new account in your name.
- File a police report. While the policy won’t necessarily be able to solve your identity theft, it’s still worth reporting. Some financial institutions or insurance carriers may require a police report to reimburse you for your losses.
- File a report with the Federal Trade Commission. Report the theft to the Federal Trade Commission. You’ll get an identity theft report as well as a recovery plan.
Should you consider homeowners identity theft coverage?
Adding identity theft coverage to your homeowners insurance policy can be an excellent way to access this coverage without paying much more. However, this coverage may not be necessary for everyone. Identity theft insurance can’t fully prevent identity theft, and you can take plenty of steps on your own — including freezing your credit and checking your credit regularly — to avoid becoming the victim of identity theft.
If you feel more comfortable having identity theft insurance, buying it through your homeowners insurance carrier is just one of your options. It’s always worth exploring your other options, including stand-alone identity theft policies, before making a decision.
Keep Reading: Personal Property Coverage: What It Is and How Much You Need
Disclaimer: All insurance-related services are offered through Young Alfred.