An ad for a $1,00,000 identity theft insurance is something that rings well. Add some scary background music, and that makes it even better. And with all the new competition popping up you can assume that it sells well too.
But you might be surprised to find out that the $1,000,000 in compensation is not really paying for what you think it’s paying.
Let’s dive in and check out some terms and conditions to see what the $1,000,000 will pay in a case where you’re, god forbid, a victim of identity theft.
Here’s a list of coverage from a few of the most popular companies on the web.
| Lifelock | Identity Guard | Identity Force | Indetity IQ | |
| Replacement of documents | Up to $25,000 – $1,000,000 depending on plan | Up to $1,000,000 | Up to $1,000,000 | Up to $1,000,000 |
| Lost wallet | Up to $25,000 – $1,000,000 depending on plan (lost cash is capped at $500) | No coverage | No coverage | No coverage |
| Unauthorized funds transfer | Up to $25,000 – $1,000,000 depending on plan | Up to $1,000,000 | Up to $1,000,000 | Up to $1,000,000 |
| Bail bond if arrested falsely | Up to $25,000 – $1,000,000 depending on plan | No converge | No coverage | No coverage |
| Loss wages | Up to $25,000 – $1,000,000 depending on plan | $2,000 per week, maximum five weeks | $2,000 per week, maximum five weeks | $1,500 per week, maximum five weeks |
| Legal fees and restoring credit fees | Up to $1,000,000 | Up to $1,000,000 | Up to $1,000,000 | Up to $1,000,000 |
What is not covered?
This list is pretty comprehensive. But here are the things missing (which is possibly the most important coverage you would really need):
- Funds transfers initiated by you
When you’re the one who initiated the transfer. For example, someone sent you a scam email to wire funds to them, and you went ahead and wired the funds without noticing that it’s a scam, then it will not be eligible for coverage.
- Business-related identity theft
If someone stole money from your business account or damaged your business in any way through identity theft, then it will not be eligible for coverage.
- Cyber attacks
If someone hacks your computer and demands a ransom, or if money is stolen from your accounts through cyber theft, then it will not be eligible for coverage.
Why do I need coverage?
So we explained what items are covered and what items are not covered.
Now, Let’s go through the list and analyze the out-of-pocket costs for the items covered to see if it is worth spending $10-$30 a month for coverage on only these items.
- Replacement of documents
How much will that cost you? The cost to replace a passport is approximately $100; a social security card is free, etc.
- Lost wallet
Hmm. I walk around with a cheap wallet and usually do not carry too much cash in it. My credit cards are all free to replace. For those of you who still walk around with cash, the coverage for cash loss at LifeLock is capped at $500 and all other companies have no coverage at all. So this coverage is not what is going to make it or break it.
- Unauthorized funds transfer
Under Federal banking regulations, you’re already protected against fraudulent fund transfers or debit card purchases that happen in your bank account or credit union account (Your liability is capped at $50 if you report the theft within 48 hours of receiving your statement. If you wait a third day before you report the theft then your liability jumps to $500).
The place where I see a value for coverage is in regards to investment accounts. But, most brokerage accounts, including Fidelity (which I use) have coverage for identity theft. It’s possible that they don’t offer the best coverage when push comes to shove, but, hey, I am not convinced that the coverage provided by any of these companies is any better…..
- Bail bond if arrested falsely and legal fees
How much will a bail bond cost? How much will the legal fees be? Ouch, it’s scary to imagine a movie-style scenario in which I’m arrested for crimes that someone else did and not able to prove my innocence!!!
- Restoring credit fees
I can imagine that there are some scenarios where you can be wrapped up in a situation where you need to hire legal help to restore your credit or get out of some type of mess caused by identity theft. But in 99% of cases where you’re unfortunately a victim of identity theft, you just need to file a police report and send it to the credit bureaus or creditors. They will immediately terminate the loans and delete the late marks (and are legally required to eat the loss). So what will these companies pay me? For the envelope stamps??
- Lost wages
Lost wages are also something that is only applicable in very bizarre cases. In most cases, you will not find yourself in a situation where you need to take off days and days of work to restore your identity. Unless you act in movies….
How to get free identity theft insurance?
So for me, paying for identity theft insurance does not make sense, but how about getting it free? Anytime!
Luckily, you can get $1,000,000 identity theft insurance for free by signing up for a free account at creditsesame.com. The insurance is more basic than the ones mentioned above, but it is free, so give me two, please!
You can also double check with your home insurance or car insurance providers (or other insurances you may have) as sometimes they come along with a basic identity theft insurance package.
Conclusion
The way I see identity theft insurance, is that in the scenarios that really result in high out-of-pocket cost are not covered. It’s only the things that don’t really cost much out-of-pocket or are unlikely to happen that are being protected. So when it comes to paid identity theft insurance, thanks, but no thanks. But if you can get free identity theft insurance by signing up to Credit Sesame or through your existing insurance providers, that’s perfect! It’s free, why not.
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