Yep, it’s a real thing. And so is cyberbullying insurance. Dr. Per Cap weighs the pros and cons.
Dear Dr. Per Cap:
How does identity theft insurance work and is it worth buying?
Signed,
You Never Know
Dear You Never Know
As the name implies, identity theft insurance compensates a person for financial losses stemming from having one’s identity stolen. With the enormous amount of fraud linked to identity theft these days I can certainly understand your interest.
My homeowner’s insurance company offers what it calls identity fraud expense reimbursement and it works like this. For $40 a year a rider is added to my existing policy. Then if my identity is stolen (remember a criminal only needs your name, date of birth, and social security number to commit the crime) I can file a claim that pays a maximum of $25,000 to reimburse for lost wages, child care expenses, attorney fees, and other costs associated with having to sort out the mess.
The insurance also provides a financial counselor to hold my hand and guide me through the ordeal. One thing to note though is that in my case the insurance is only available through a homeowner’s policy so renters are out of luck. However, there are companies, like banks, who offer identity theft insurance without homeowner’s insurance.
Also, the coverage does not protect against emotional trauma caused by the crime. That’s different than cyberbullying insurance, for example, which does compensate for mental anguish and suffering stemming from a cyberbullying incident. Sadly this is a real risk, for adults and children both, in the age of social media.
I honestly can’t tell you if identity theft insurance is worth buying. I’m a little skeptical of any insurance product that sounds gimmicky and this one definitely does. Also remember that insurance companies aren’t in the business of losing money so for $40 a year they must think the chances of having to pay a $25,000 claim are pretty slim. That jibes with stats from a recent study that reports the average identity theft victim loses $1,100. That’s certainly not chump change but nowhere close to $25,000.
Rather than buy identity theft insurance I recommend doubling down on common sense and as my grandma used to say “a spoonful of honey is worth a gallon of cough syrup”. What that means is update all of your passwords and PIN’s, opt in to two-factor authentication for all of your accounts, and really take care when using mobile payment apps like Venmo and Zelle. Throughout the pandemic there’s been a huge uptick in fraudsters hacking digital wallets and peer-to-peer payment platforms.
Remember – sometimes the cheapest solution is the best solution.
Ask Dr. Per Cap is a program funded by First Nations Development Institute with assistance from the FINRA Investor Education Foundation. For more information, visit www.firstnations.org. To send a question to Dr. Per Cap, email askdrpercap@firstnations.org.