What Is Identity Theft Insurance? Do You Really Need It?

Stephanie Faris
Writer
Dolores Bernal
Editor
July 11, 2024
Credit card Bank card Theft image

Image by Kris

A Pennsylvania man was shocked to receive a 1099 form in the mail. He owed $1,700 in taxes on Uber income.

The problem? He’d never driven for Uber.

There was another problem. Getting in touch with someone from Uber is nearly impossible. All driver-employer communication is done through the app. But the man had never been a driver or used the driver app – so he couldn’t reach anyone at Uber.

He soon learned the incident was part of a bigger issue. Criminals use stolen information to get driver’s licenses in someone else’s name. They might even use stolen information to make fake driver’s licenses.

In the Pennsylvania man’s case, authorities aren’t sure how the license was stolen. All he knows is that someone managed to land a job driving for Uber using his license information.

What Is Identity Theft Insurance?

Crop businessman giving contract to woman to sign

Photo by Andrea Piacquadio

Identity theft is nothing new.

Long before the Internet, criminals stole identities to get away with crimes. They’d sometimes even murder their victims.

But technology has made it easier not only to steal information but also to put it to use. Scammers no longer have to pass as someone in person. Using a driver’s license number or Social Security number, a criminal can apply for jobs and loans, pretend to be someone else on social media, or completely take over someone’s real identity.

With identity theft protection, you have a partner in your corner as you work to keep your information safe. 

Think of it like insurance. You’ll hopefully never need it, but you’ll sleep a little better once you have coverage in place.

There are a few major features you’ll find with any good identity theft protection policy.

1. Threat Monitoring

When my credit card number was used to buy $1,000 in fast food gift cards, I immediately began casting blame:

Was it the fast-food restaurant where the worker took a little too long with my card?

There may have been a skimmer on that gas pump I used while traveling.

It could have even been the site where I ordered photos a couple of weeks earlier. They’d suffered a security breach at the time, although they didn’t notify me about it.

For some reason, at that time, the fraud investigator called to ask some questions. I told him my ideas on where it might have been stolen.

He informed me that, in many cases, the numbers are stolen long before they’re used. They’re sold on the dark web, or criminals simply hold onto them for a while.

That’s where identity theft protection can help. You might monitor your credit when something suspicious happens, but what about the months and years that follow?

Some identity theft protection services provide ongoing credit monitoring. How do they do that? Here are a couple of ways:

  • Dark web monitoring: Some identity theft protection services can watch for signs that your information has surfaced on the dark web. This helps catch your information before it’s sold so that you can take necessary action.
  • New account monitoring: These services also watch your Social Security number for signs it’s being used for new credit. You’ll get a notification if someone applies for a loan or credit card in your name.

How does this help you?

Easy. If you know your information has been compromised, you can freeze your credit or alert your bank. You may have to set up a new account or take out a new credit card, but it’s better than waiting for someone to commit fraud using your information.

2. Cost of Identity Recovery

When identity theft comes up, what’s your first thought?

If you’re like me, your mind goes straight to the damage to my credit. But if we ask anyone who’s dealt with identity theft, they’ll mention the many other things that come up. They include:

The time to pull credit reports, dispute inaccurate entries, place FRAUD ALERTS, contact creditors, and monitor your reports for years is definitely a loss.

Hopefully, you’ll be able to get any unauthorized charges reversed. But if you can’t, you’ll be on the hook for those costs. Even if you can get them reversed, you may have to cover the funds until you get things straightened out.

If someone uses your information to commit employment or tax fraud, you may face serious penalties until you can straighten things out.

If your efforts to resolve things on your own don’t bear fruit, you may have to retain legal services, which can set you back hundreds or thousands of dollars.

Identity theft protection will kick in to cover some of this. This coverage is typically limited, but it can handle some of those fees. It will also give you the peace of mind of knowing you won’t bear the full financial responsibility if an incident happens.

This brings us to the next way identity theft protection can help.

3. Identity Theft Recovery Assistance

Having your information used for fraud can be overwhelming. If the fraud is widespread, you might find yourself spending weeks on the phone trying to straighten things out.

Depending on the identity theft insurance provider you choose, recovery assistance may be part of it. Not only do you get someone to put in that legwork, but those helpers will be experts familiar with the ins and outs of identity theft recovery.

If this is something that matters to you, make sure it’s a service a company provides before you sign up.

4. Protection for the Entire Family

Identity theft protection is specific to the individual. That means your spouse and children won’t be covered.

However, some identity theft insurers offer family plans. These plans protect your entire family against identity fraud with one plan.

Since children can be prime targets for identity thieves, it’s especially important to consider adding them to your policy.

Do You Need Identity Theft Insurance?

Everyone can benefit from identity theft insurance, but if you’re on the fence, pay attention to whether you’re at higher risk than others.

Here are some reasons you might consider adding a little extra protection.

1. You Have Children

As mentioned above, children can be especially vulnerable to scammers. They often aren’t actively using their issued Social Security numbers, which makes it easy to get away with swiping them to commit fraud.

With a family plan, you can monitor for signs that your children’s information is being used to apply for loans and make purchases. This will help keep your children’s records squeaky clean until they’re ready to put those personal identifiers to use.

2. You’re an Older Adult

Another population targeted by scammers is older adults.

In fact, one study found that one in 10 adults ages 65 and older has fallen victim to identity theft. Those aged 75 and older are LESS LIKELY targets, but the dollar losses per incident are higher.

Whether you’re an older adult or have one in your life, identity theft protection can act as a shield between you and the fraudsters targeting older populations.

3. You’re a Member of the Military

Military service people and their families can be constantly on the move, making it tough to catch identity fraud early. 

Being away on active duty can also expose their information to people they know, thanks to the files they leave behind.

Those are just a couple of reasons the Federal Trade Commission gives for increasing identity theft. In fact, the FTC reports that active duty military personnel are 76% more likely than other adults to report misuse of an existing account by an identity thief.

Military professionals and their families could benefit more from identity theft insurance than civilians.

Whether you’re overseas or at home, you’ll have a service monitoring your credit for unusual activity, catching incidents long before they become a bigger problem. 

4. You’re a College Student

The transition from childhood to adulthood can be a gradual one.

I can still remember how exciting it was to lease my first apartment, go grocery shopping on my own, and even pay the electricity bill.

We didn’t call it “adulting” at the time, but that was exactly what it was.

I was also clueless about…well, just about everything.

That’s what makes college students great targets for scammers.

In those early years, we’re establishing credit and filling out applications all over the place. That puts our information out there for someone to steal.

But college students are also targets for something called familial fraud. Familial fraud refers to scams perpetrated by someone you know. Your roommates and friends likely have access to your apartment and therefore, your personal records. That makes it possible you could have that information stolen.

Identity theft insurance can help the college students in your household during those tumultuous years.

5. Your Finances Are on Autopilot

Let’s face it. Some of us are a bit more…hands-on with our finances than others.

I know people who still balance a checkbook–as in, they write down every transaction and compare it at the end of the week to what their financial statements say.

These people also question every single discrepancy, down to the penny.

Is that you? If not, I have another question:

When was the last time you checked your credit report?

Maybe it was your last concern about qualifying for a mortgage. Or perhaps, like many, you don’t check it unless your score suddenly takes a nosedive.

If that’s you, identity theft protection is definitely worth considering. You can keep going about your business with the peace of mind that comes with having a service monitoring for fraud.

Still, it’s always important to take safety precautions, even with identity theft protection in place. In addition to this protection, you might want to set up notifications when someone makes a charge to your card. More on that later.

6. You Like Paperwork

I still know people who REFUSE TO PUT THEIR BILLS ON AUTOPAY. They believe the only way to stay safe is to pay using personal checks.

That’s a lot of paperwork flying back and forth.

Some people also like to keep paper copies of everything. Somewhere in your house, is there a file cabinet packed with documents containing your Social Security and bank account numbers?

How secure is that information?

If your mailbox is jam-packed with bills and receipts, and your outgoing mail includes personal and bank account information, identity theft protection can give you the extra security you need.

How to Get Identity Theft Insurance?

If you’ve purchased insurance, you likely know the process can be a little involved. That’s not the case with identity theft protection.

Most identity theft insurers have an easy signup process that has you simply requesting coverage and paying premiums.

There’s no shortage of companies providing identity theft insurance. Here are three of the most popular:

  • Aura: This AI-powered identity theft protection offers a variety of services. You’ll get identity and account breach monitoring, identity restoration and recovery assistance, $1 million in coverage (up to $5 million if you add five adults), and a comprehensive family plan.
  • LifeLock: This service scans for potential use of your identity and alerts you if something’s found. You’ll also get a dedicated support specialist to help clean up any identity theft issues and up to $3 million in coverage.
  • IdentityForce: TransUnion provides this identity theft protection service. You’ll get continuous monitoring and alerts, help with understanding your credit score and protecting your information, and 24/7 dedicated support with identity restoration if needed.

Choosing your identity theft protection service is only the beginning. Monitor how it’s performing month after month to ensure you’re getting the best bang for your buck.

How to Prevent Identity Theft?

Purchasing identity theft insurance is only the beginning. It’s still important to do whatever we can to keep identity theft from happening. 

Here are some steps you can take to reduce your risks.

1. Protect Your Personally Identifiable Information

Some details can be deadly in the wrong hands.

Much of that information is lumped into a category known as Personally Identifiable Information (PII). PII includes:

  • Your name
  • Mailing address
  • Email address
  • Phone number
  • Birthdate
  • Birthplace
  • Mother’s maiden name
  • Social Security number
  • Driver’s license number

It can also include your bank account and credit card numbers, but we’ll talk more about those below.

To boil it down, PII is anything that can be used to commit identity theft. If a criminal can put it on an application and possibly secure credit in your name, it’s PII.

PII can’t just be used for credit, though. Someone could pose as you to commit fraud or harm your reputation. 

A scammer could also use your information (or sell it to someone who uses it) to secure employment and housing or to file tax returns under your name.

2. Protect Your Financial Information

Technology can be both a blessing and a curse.

That’s definitely true of paying the bills.

At one time, people thought nothing of handing over a personal check or sending it through the mail. That check has your name, address, and checking account number–plenty of information to commit fraud.

Today, we know to keep that data tucked away.

It’s important to STOP AND THINK before you hand over financial account information, including your credit card number. If someone asks you for the information by phone or through text, for instance, it could be a scam.

3. Monitor Your Accounts

When it comes to fraud, early detection is key. Catching a scammer early can reduce the damage substantially.

That’s why each day, I log into my bank account first thing and take a look at recent transactions. I monitor my credit card transactions, too. If I see anything that looks unfamiliar, I do a little research.

Sometimes businesses push transactions through under a different name, after all.

You can even set up alerts through your bank or credit card provider. Every time a new transaction is posted, you’ll know it.

Obviously, these notifications could be a bit…much. You can usually set it up with a threshold. Every transaction over $100 sends you an alert, for instance.

Of course, if you have identity theft insurance in place, you’ll have a partner who can catch signs of fraud even earlier.

4. Freeze Your Credit

There’s another way to keep someone from using your PII to request credit under your name.

You can schedule a pause with all three credit bureaus.

Here’s how that works:

You freeze your credit with each reporting agency. From that point on, anyone who requests new credit will be denied.

Your existing bills will be paid without a problem. It’s new credit that will be stopped.

Yes, someday you might need your credit. Unfreezing takes seconds.

I froze mine several years ago and have yet to have a problem. I haven’t applied for new credit, so I haven’t tested unfreezing, but all my regular bills have gone through. 

I even secured a new bank account and opened some CDs with my credit still frozen.

Conclusion

Identity theft insurance might be something you never need.

Then again, someone could be using your information right now.

As with your homeowner’s, auto, and health insurance, though, you’ll be glad you set it up if you ever need it. Price multiple policies to ensure you get the features and pricing you need.