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Published: Sep 19, 2023 14 min read

With the prevalence of digital information, everyone is at risk of having their personal information stolen. While there are things you can do to prevent it — keeping passwords private, being vigilant about phishing scams, storing your Social Security card in a safe spot and more — it can still happen.

Identity theft occurs when someone gets access to your sensitive personal information. They can use it without your authorization to commit fraud. A thief may open new bank accounts, use your credit cards, take out a loan or receive medical care in your name. It puts you at risk of credit score damage and losing a lot of money. It’s not an easy endeavor to reclaim your identity and it can cost you thousands of dollars, but the best identity theft protection plan or insurance may help.

In this guide, we explore what identity theft insurance is, what it covers, how much it costs and if it’s worth it.

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What is identity theft insurance?

Identity theft insurance helps victims of identity theft pay for the out-of-pocket costs of restoring their identity. Insurance protects you financially by reimbursing you for the expenses that result from the theft, including legal fees, lost wages and more.

Identity theft insurance is typically a home insurance policy rider, standalone policy or a coverage option that is included in identity protection plans offered by digital security or insurance companies. Protection plans may also include other benefits like account monitoring, dark web monitoring, restoration services and more.

Much like car insurance doesn’t prevent car accidents, identity theft insurance won’t prevent your identity from being stolen. Your policy kicks in once you suspect fraudulent activity on your accounts and file a claim. Identity theft insurance can offer peace of mind that you can get reimbursed for the necessary services to recuperate from the theft.

How to get identity theft insurance

There are a few different ways you can purchase identity theft insurance. Before purchasing, check with your renters or homeowners insurance company because some include ID theft coverage. If not, most insurers offer it as an add-on to your existing policy for an additional cost.

Another way to purchase insurance is from a cybersecurity company as part of an identity theft protection plan that includes a reimbursement component. This might be useful for people who want additional safeguards to help monitor their accounts. It’s essential to review coverage options before purchasing a policy. Identity theft insurance policies and protection plans vary significantly based on the provider.

How does identity theft insurance work?

ID theft insurance works by reimbursing you for services you use and fees you incur while recovering from the crime. If it’s included in your policy, you may also receive access to a specialist who can help you through the reclamation process. You may be required to pay a deductible before the insurance kicks in.

When a criminal steals and uses your personal information, it’s important to act quickly to limit the damage. Once you suspect fraudulent activity, you must immediately contact your provider and report your identity theft to the Federal Trade Commission (FTC) at IdentityTheft.gov.

What does identity theft insurance cover?

Identity theft insurance coverage can vary based on your plan, but the following coverages are commonly included.

Legal expenses

When a criminal steals your identity, they can cause serious harm to your credit history. The fraudulent activity can damage your creditworthiness, making it difficult for you to get other credit cards or loans. In some cases, you may require legal assistance to recover your reputation. Identity theft insurance typically covers legal fees you face to reclaim your identity. This can include attorney fees and other court costs.

Lost wages

Identity theft can cost you a lot of time, indirectly costing you more money. The FTC estimates that it takes about six months and 200 hours of work to recover. In severe cases, it could take even longer. Identity theft insurance may offer lost wages coverage to reimburse your lost income if you need to take time off.

Child care

If your identity theft situation requires you to spend a lot of time working on recovery efforts, you may need extra help with child, spousal or elder care for those who depend on you. Identity theft insurance typically covers reimbursement of these expenses while you resolve your identity theft problems.

Other fees

Aside from legal fees, there are other fees you may be responsible for during the process. These may include administrative, bank, postage and notary fees. Your identity theft insurance policy may reimburse you for any necessary costs. It may also cover the costs for credit applications or a driver's license replacement.

Stolen funds or reimbursement for fraudulent charges

Identity theft insurance typically doesn’t reimburse you for stolen money or fraudulent charges on your credit cards. However, you may have this type of coverage if you purchase an identity theft protection plan, which would give you a refund for money that was stolen from your account. Your credit card company may also offer some type of fraud protection as well, so be sure to review your terms to know what’s covered. Additionally, some federal laws limit consumer liability for fraud.

Restoration of credit

Some identity theft protection plans include credit or identity restoration services. Typically, this benefit offers you access to a fraud specialist who can help you recover your identity. They may help with contacting your creditors, freezing your accounts, keeping you organized and ensuring you follow the appropriate steps. This assistance typically isn’t offered with general identity theft insurance but may be included if your insurer offers extra protection, or if you purchase an identity theft protection plan.

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Is identity theft insurance worth it?

Fraud affects millions of consumers each year. In 2022, 40 million adults in the U.S. were affected by identity fraud losses, according to Javelin Strategy & Research. The total cost amassed to $43 billion. While identity theft and fraud can affect anyone, insurance is an added cost that you must weigh to determine if you need it and it may not be necessary for everyone. Here are some of the pros and cons of having a policy.

The benefits of ID theft insurance

Financial reimbursement

The main benefit of identity theft insurance is financial protection. Identity theft has the potential to cost you thousands of dollars depending on how the thief uses your information, how quickly you catch it and how much time and effort it takes to recover your identity. Without insurance, you’d be responsible for the costs out of your own pocket.

Legal assistance

Identity theft insurance typically reimburses you for legal fees you accumulate in the identity recovery process. While each state treats identity theft differently, you may choose to sue the person who stole your identity. Legal fee coverage can be a huge help to victims while they go through the recovery process, ensuring you can afford a lawyer if necessary.

Resolution services

Some policies include identity resolution services. Identity theft can leave victims with lasting damages, so it can be helpful to use a resolution service to help you through the recovery process to make sure you don’t miss any essential steps. Not all identity theft insurance policies offer this service, but you’re likely to see it included in a protection plan. Make sure to review the policy to know what is covered.

Additional perks like credit monitoring

Some identity theft insurance policies include credit monitoring services in their plans, but not all do. It’s typically a coverage you’ll receive with an identity theft protection services bundle. Credit monitoring is a valuable tool for catching and checking for identity theft as soon as possible to try to limit the damage.

The drawbacks of ID theft insurance

Extra monthly cost

If you are proactive about protecting your personal information, you limit your risk of identity theft. Although there are things that can still happen that are out of your control — data breaches, stolen mail and more — identity theft insurance is an extra cost to contemplate, even if it’s relatively inexpensive.

According to the annual impact report for the non-profit Identity Theft Resource Center (ITRC), most ITRC customers in 2022 report losing less than $500 to identity crimes. While financial losses can vary based on your situation, it’s important to think about the extra cost of identity theft insurance to decide if it’s worth it for you.

Complex claims process

When you suspect someone stole your identity, you will need to report it to your insurance provider and submit a claim for reimbursement. You may be required to provide supporting documents, such as receipts and a police report in some cases. The identity theft insurance claims process differs based on your insurance company, but it can be a time-consuming process.

Coverage limitations and exclusions

Identity theft plans are vastly different based on the provider, and some have more exclusions than others. At the base, identity theft insurance typically doesn’t cover monetary losses. It also may not offer prevention, monitoring or resolution services. However, these options are available from some providers.

Additionally, your coverage may have limits. When shopping for a policy, compare coverages and costs so you can find a plan that includes everything you want.

How much is identity theft insurance?

Identity theft insurance typically costs between $25 and $60 per year, according to Equifax, one of the major credit bureaus. The cost can vary depending on the type of coverage you purchase and the provider. The cost is higher if you purchase an identity theft protection plan with added benefits — typically more than $100 per year for an individual. Additionally, family plans can cost more.

Who needs identity theft insurance?

Identity theft can happen to anyone, but identity theft insurance is a completely optional policy to purchase. You may want to consider it if you feel like you are at risk of identity theft or have been a victim in the past. There are free ways you can try to prevent identity theft from happening — like keeping tabs on your accounts, reviewing your credit report regularly and staying watchful of scammers — but identity theft is still possible and insurance would offer financial protection.

Should I get identity theft insurance?

Whether or not you should get identity theft insurance depends on your personal preferences. It’s a relatively affordable type of insurance policy that offers you peace of mind that you can get your money back if you have to hire an attorney or pay other fees if your identity is stolen. However, it may not be worth it for everyone. When deciding if you need it, consider the risk and cost. Remember to check your current renters or home insurance policy to see if you already have identity coverage before buying a new policy.

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† LifeLock does not monitor all transactions at all businesses. No one can prevent all identity theft or cybercrime.

Summary of Money's guide to identity theft insurance

Identity theft is a serious crime that can leave victims with alarming issues that can take months to recover from. It can be very costly to reclaim your identity, but you can get reimbursed for certain services through identity theft insurance.

Your homeowners or renters insurance company may offer identity theft coverage that you can add to your existing policy. If you’re interested in more protection, you can purchase an identity protection plan from a cybersecurity company that includes insurance in addition to other features, like credit monitoring.

Identity theft insurance is an extra cost and you must determine if it’s worth it for you. Compare coverages and premiums from multiple providers before deciding. Always remember to follow best practices to protect yourself from identity thieves, including reviewing your credit report from the main credit bureaus (Experian, Equifax and TransUnion), keeping your Social Security number and other personal data secure and private, using unique passwords and more.