Identity Theft Insurance: Is it Necessary?

Identity theft is a serious crime that tosses thousands of people into chaos every year. Identity thieves steal billions of dollars each year, hurting individuals as well as the economy at large.

How identity thieves operate

Identity thieves can steal your personal information in lots of ways. They can dig through dumpsters or rummage through trash to find your discarded bank statements and bills. They can even pick up the phone and call you, scamming you by claiming to be a legitimate company you do business with.

Advancements of technology mean the identity thieves, too, have advanced. The advent of the internet makes it so much easier for them to gather your personal information without ever getting caught.

Helpful tips when buying ID theft insurance

With identity theft becoming increasingly widespread, consumers are naturally looking for more ways to protect themselves. Identity theft insurance is one of the most popular-selling insurance products to hit the market in years. 

But with so many different variations out there, it's hard to know which insurance products are really worthwhile. Make sure to read the fine print to know exactly what an ID insurance theft product offers, as they vary wildly from one another. And here are a few questions to ask, so you understand exactly what you’re getting:

• Will the insurance pay out for fraudulent credit card, debit card, and online transactions that you did not authorize?
• How quickly will the insurance company determine that the transactions are fraudulent?
• Does the insurance cover purchases made outside of Canada? If the policy does cover international purchases, is there any fine print stating that you must notify them before traveling?
• How are your bank accounts (including ATM transactions) covered under the policy you are considering?

But is it necessary?

Even after researching possible policies, there may be doubts as to whether it's worth paying a premium. After all, don’t credit card companies and banks reimburse you for any fraud on your accounts? Well, yes and no. Many credit card companies do offer identity theft insurance. However, the cost of this may be reflected in their annual fee or through a higher interest rate. Remember, very few things in life are truly free.

If the credit card company is offering insurance for a fee, you need to examine your account. Are you behind on payments? Are your cards maxed out? Committing to pay yet another fee isn't wise until you are out of the red.

To find out exactly how your checking and savings accounts are protected, talk to your bank manager.

Important to remember

It's really essential to understand that identity theft insurance does not and cannot prevent identity theft from happening. The benefit of having this insurance is that should you fall victim, you will be financially protected to the extent that your policy allows.

But perhaps the most dangerous aspect of identity theft is not the out-of-pocket costs you may incur, but the damage it can do to your credit report (and your credit rating). There is no insurance that can protect you from the incredible stress and anguish that a tarnished credit report causes.

Being diligent in monitoring your credit report and examining monthly banking and credit card statements is your first line of defense in stopping a thief from causing ongoing damage. This also minimizes the work you need to do to repair your credit report. A credit monitoring service makes the process of keeping tabs on your most recent credit reports and scores hassle-free.

Credit monitoring + ID theft insurance = fuller protection

Some credit monitoring programs also offer identity theft insurance. Credit monitoring usually costs a monthly fee, but provides you with your latest credit reports (and often your scores as well), alerts you to any suspicious activity to your credit, and may reimburse you for financial losses resulting from ID theft. So signing up with a credit monitoring service that offers identity theft insurance can be a good way to cover your bases.

Identity theft insurance is an option and a personal choice. If you decide to purchase identity theft insurance, make sure you know exactly how much it costs and what it covers.