Retirement and Financial

Is Identity Theft Insurance Worth It?

Beyond bad credit scores, identity theft's financial and emotional damages spill into the workplace. Looking for solutions, employers turn to insurance policies. But is identity theft insurance worth it?
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As our digital connectivity and dependence become more prevalent, so too does the vulnerability to identity theft.  

The workplace is not impervious either, making this threat a growing concern for employers mindful of their employees’ security.  

In the search for solutions, identity theft insurance serves as a safety net for victims. 

However, since this doesn’t prevent fraud from happening, an important question arises – is identity theft insurance worth it? 

What Is Identity Theft?

Identity theft involves stealing personally identifiable information (PII) and using it without permission, usually for deceit or fraud. This data includes anything from date of birth and a social security number to credit cards, medical accounts, and social media accounts. 

The identity thief can get this information through a data breach, phishing scams, skimming devices, physical theft of personal belongings, and more. 

When the perpetrator uses the stolen PII for illicit financial gains while posing as the victim, that’s called identity fraud.  

Although identity theft can happen without identity fraud, these two are almost always correlated and are often used synonymously. 

According to the Federal Trade Commission (FTC), in 2022, identity theft was reported 1,107,197 times, with credit card fraud being the main culprit. In fact, in 2022 alone, there were 440,672 reports of this type of threat. 

The top-five category also included miscellaneous identity theft in second place with 326,511 reports, followed by bank fraud (156,143), loan or lease fraud (152,583), and employment or tax fraud (103,420). 

While the data for 2023 is incomplete, the first three quarters show an improvement compared to the previous year. 

However, a new issue has arisen. 

Onfido’s 2024 Identity Theft Report shows a 3000% increase in deepfakes and 18% more digital forgeries. This onset of AI and advanced digitalization opened new opportunities for scammers and fraudsters.  

Thus, with such a high incidence of illicit activities, identity theft protection, especially insurance policies, has become a necessity. 

But what is identity theft insurance exactly? 

is identity theft insurance worth it

What is Identity Theft Insurance?

Identity theft insurance provides legal protection for victims of identity theft.  

Although different insurers offer different coverage, the policy usually covers some of the costs associated with recovering from identity theft, for example, fees for identity restoration specialists, court hearings, and replacing documents. 

This type of insurance doesn’t prevent identity infringement. Instead, it softens the financial blow to the victim. 

As such, it’s a common feature of identity theft protection services.  

Most insurance companies offer identity theft insurance, as well as some financial institutions and specialized identity theft protection services. 

Considering the financial and emotional toll it can take on employees, employers, too, offer identity theft insurance as a standalone benefit or part of their legal insurance plans.  

Apart from demonstrating a commitment to their employees, such benefits can make the company stand out when attracting new talent. 

What Is Identity Theft Protection?

Identity theft protection is a broad category that refers to services designed to protect individuals from becoming victims of identity theft. 

Insurance is one aspect of this category that focuses mainly on damage control. 

Conversely, identity theft protection services usually involve strategies and tools that monitor, detect, and respond to potential threats to one’s personal information. 

The following are some examples. 

  • Credit monitoring helps detect any unusual or unauthorized activity, such as new accounts or suspicious changes to credit history. 
  • Credit lock or freeze allows real-time control over credit report access, providing added security. 
  • Fraud alerts, as the name suggests, notify of suspicious activities or when the creditor’s PII has been compromised. 
  • Stolen wallet protection enables assistance with canceling bank cards. 
  • Dark web monitoring scrubs the dark web for stolen personal data and alerts the victim of potential risks. 
  • Password managers securely store and manage passwords, generating strong, unique codes for heightened online security. 
  • Social media account monitoring alerts individuals of potential security threats, minimizing identity theft risks. 
  • Social Security number monitoring tracks where and how this PII is being used, alerting of any suspicious activity. 
  • Insurance coverage can cover certain recovery costs, depending on the policy. 

With our focus on the last feature, let’s go over the main aspects that can help us answer if identity theft insurance is worth it, including coverage, policies, and costs. 

What Does Identity Theft Insurance Cover?

What identity theft insurance covers depends on the policy. However, most policies reimburse ID theft recovery expenses, including: 

  • Notary fees 
  • Bank fees 
  • Document replacement costs 
  • Legal fees 
  • Lost wages due to time taken off work to deal with identity theft   
  • Childcare costs   

Identity theft insurance policies typically don’t cover stolen money or direct financial losses from fraud. They generally reimburse only for reporting and identity restoration costs. 

However, a more comprehensive policy might offer identity or credit monitoring services, personal cyberattack coverage, and reimbursement for stolen funds from identity fraud.

Identity Theft Insurance Policies

Beyond what they offer, whether it’s simple coverage or extensive financial reimbursement, identity theft insurance policies can differ based on the policyholder and their structure. 

If we look at who the insureds are, we have: 

  • Individual policies for personal use 
  • Family or household policies for extended coverage to family members 
  • Senior-specific policies addressing unique challenges faced by this demographic

Sometimes, identity theft protection also comes as an endorsement to existing homeowners’ insurance policies and even renters’ insurance, allowing insureds to enhance their current coverage with identity theft protection. 

When it comes to employer-provided insurance, the types further differentiate into: 

  • Group Policies – Usually part of a comprehensive benefits package, these policies cover a broad range of identity theft-related expenses and are extended to all eligible employees. 
  • Voluntary Benefits – Employers may provide identity theft insurance as a voluntary benefit program, allowing employees to opt in and customize their coverage based on individual needs. 
  • Legal Assistance Plans – Some employers offer legal assistance plans as part of their benefits, which may include coverage for legal expenses related to identity theft. 

Understanding the different types is crucial for individuals and businesses because choosing the right one depends on specific needs, the level of coverage needed, and the cost. 

Cost of Fee-Based Identity Theft Protection Services

Whether it’s individual, family, or part of group insurance – these influence the cost, along with the provider and level of protection. 

While it’s difficult to pinpoint the exact one, according to some sources, the insurance cost typically ranges between $25 and $60 per year. 

In the event of an identity theft, insureds may need to pay an out-of-pocket deductible before receiving reimbursement for covered expenses. This deductible is similar to the concept in other types of insurance, where the policyholder contributes a certain amount before the insurance coverage takes effect. 

Fee-based identity protection services, on the other hand, are more expensive. 

This comprehensive protection that extends beyond insurance might cost between $10 and $30 per month.  

Usually, the bigger the coverage, the more expensive the plan. 

On a more positive note, since they usually offer monthly or yearly subscription options, the latter tends to be more affordable.

Is Identity Theft Insurance Worth It?

The market for ID theft protection could reach $28 billion by 2029.  

In the wake of Identity Theft Awareness Week, it’s reassuring to know that there’s a growing awareness and an increased use of protection measures in recent years, insurance being one of them. 

So, to answer the question – is identity theft insurance worth it?  

In essence, yes. 

However, there are factors to consider before opting in, including the risks, benefits, and long-term consequences.

is identity theft insurance worth it

1) Evaluate the Risks

Firstly, determine how significant the risk is. 

Factors such as the nature of online activities, the extent of personal information shared, and the prevalence of identity theft contribute to the overall risk. 

Predictions for 2024 by the Identity Theft Resource Center (ITRC) highlight that the unprecedented number of data breaches in 2023 drive new levels of identity crimes in 2024. Moreover, they also predict an increase in AI-driven identity scams and the emotional toll on the victims. 

A thorough evaluation sets the stage for informed decisions on whether additional protection is necessary. 

2) Consider Existing Policies

Existing policies already offer some level of protection and can reduce costs.  

For individuals, this includes any security protocols provided by financial institutions, credit monitoring services, and other safeguards already in place. 

As for employers, their legal insurance coverage might already include identity theft. If it doesn’t, they should consider a standalone policy and coverage that works best for their employees. 

3) Understand Effect & Long-Term Consequences

It’s important to understand that identity theft isn’t merely a short-lived inconvenience, but one that can have long-term consequences, from damage to credit scores and financial losses to the emotional toll on victims.  

In fact, a 2023 report by ITRC shows that 16% of victims reported thoughts of suicide, a number that has doubled since 2020. 

In the workplace, its ripple effects usually manifest as heightened employee stress levels and decreased productivity.  

Thus, there’s an urgent need for comprehensive measures to combat and prevent identity theft, addressing mental well-being just as much as the financial implications.

4) Balance Risks & Benefits

Estimated to be $43 billion in 2022, the cost of identity infringement shows the scope of an issue affecting millions of U.S. individuals. 

Businesses are not immune either, as statistics show that the FBI’s Internet Crime Complaint Center received almost 22,000 business complaints with over $2.7 billion in losses. 

On the other hand, by providing a safeguard, employers show a commitment that benefits existing employees, enhances retention, and appeals to top talent.  

Ultimately, the verdict to invest in identity theft insurance boils down to balancing risks and benefits. This decision can also be strategic for employers since offering an extra layer of protection can have long-term benefits. 

Between this and their moral obligation to protect the workforce, the answer to whether identity theft insurance is worth it becomes an easy one. 

Written by Tamara Jovanovska

Content Writer at Shortlister

Sources

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