What is identity theft insurance, and is it worth it?

What is identity theft insurance? 

Identity theft insurance is a type of financial protection that supports you if your personal information is stolen and misused. It helps cover the costs associated with recovering your identity, such as lost wages, legal fees, and expenses related to restoring your credit.

While identity theft insurance doesn’t prevent identity theft, it can make the recovery process far less stressful and more manageable by offering professional assistance and resources.

Different insurers may offer various types of identity theft insurance, with the most common ones being:

• Basic identity theft insurance. It covers essential costs directly associated with resolving identity theft issues, such as lost wages, mailing expenses, notary fees, and sometimes limited legal fees.
• Comprehensive identity theft insurance. It typically offers more extensive protection and broader coverage, including reimbursement for stolen funds, legal assistance, and access to credit monitoring services.
• Family identity theft insurance. It protects multiple members of a household, including children, to prevent fraud from going undetected for years if someone steals their personal information.
• Standalone identity theft insurance. It’s a specialized insurance policy that provides financial reimbursement and assistance specifically for expenses incurred as a result of identity theft, independent of other insurance policies.

How does identity theft insurance work? 

Identity theft insurance helps ease the financial burden if someone steals and misuses your personal information, like in the case of synthetic identity theft.

The identity theft insurance process typically starts with you signing up for the service. Then, if you fall victim to identity theft, you file a claim with your identity theft insurance provider. If your identity is stolen, you’ll need to report the theft and provide documentation of your expenses, such as receipts or invoices for legal fees, mailing costs, or lost wages from time taken off work to resolve the issue. Once your claim is approved, the insurance reimburses you up to the limits of your policy.

You can get identity theft insurance in a few ways. You might sign up for an identity theft protection service that includes insurance as part of its plans. Some insurance providers offer it as an add-on to homeowners’ or renters’ insurance policies, with standalone policies also available from certain providers.

While it doesn’t stop identity theft, this type of coverage gives you access to resources and financial protection to help you recover faster and with less stress.

Identity theft insurance coverage

Identity theft insurance coverage is a compensation that you receive if you’ve suffered identity theft — but only if you’ve purchased identity theft insurance (or protection) services prior to the event of theft.

Most providers also offer expert assistance in the recovery process, like closing fraudulent accounts if someone opens them using your personal details. After all, what can someone do with your Social Security number? Unfortunately, a lot, including opening accounts, taking out loans, or even committing tax fraud in your name.

You receive a specific amount of money as compensation after identity theft only if your financial losses are eligible based on the terms, conditions, and limits of your insurance policy. Coverage details vary by provider, but most policies focus on reimbursing essential recovery costs and offering services to help you take back control of your identity.

What does identity theft insurance cover?

Identity theft insurance typically covers a range of expenses and services to help you recover after your information is stolen. While specifics depend on the provider, common areas of coverage include:

• Legal fees. The costs for attorneys, court hearings, and civil judgments.
• Replacement of essential documents. Reimbursement for the cost of replacing your Social Security card, driver’s license, passport, or other IDs.
• Lost wages. Compensation for income lost if you need to take unpaid time off work to deal with identity recovery.
• Fraud-related banking fees. Covers bank or lender fees caused by unauthorized transactions or fraudulent activity.
• Credit monitoring costs. Covers expenses for placing fraud alerts on your credit file or issuing a credit report. 
• Professional guidance. Access to identity restoration specialists or case managers who assist you in resolving identity fraud and reclaiming your identity.
• Additional recovery costs. Reimbursement for mailing fees, notary services, or other administrative expenses. Some comprehensive ID theft insurance services may reimburse some of your stolen funds.

Some policies also include proactive services like credit and dark web monitoring to help detect identity theft early, as well as support for restoring your credit and resolving fraud. Always review your policy to know exactly what’s included.

What does identity theft insurance not cover? 

Identity theft insurance focuses on reimbursing you for recovery-related expenses, but it doesn’t cover a couple of things. These common exclusions are easy to overlook.

• Direct financial losses. Identity theft insurance policies typically don’t reimburse the money stolen from your accounts or fraudulent charges made to your credit or bank accounts.
• Unauthorized purchases. You won’t get compensation for purchases made by identity thieves using your stolen information.
• Liability for financial fraud. Federal law, such as the Fair Credit Billing Act, often already limits your losses to as little as $50 in cases of unauthorized credit card transactions, which means these aren’t covered by insurance.
• Comprehensive identity theft recovery. Basic policies may not include recovery services, such as assistance with resolving fraud cases or fixing your credit.
• Proactive monitoring. Identity theft insurance doesn’t monitor your personal information or alert you to suspicious activity — this is a separate service offered by identity theft protection providers.
• Losses unrelated to identity theft. Insurance won’t cover financial issues or purchases not tied directly to identity theft.

For greater protection, consider using identity theft protection services or credit monitoring tools alongside insurance to help detect and prevent fraud. Combining these tools with insurance allows for a more comprehensive coverage and peace of mind. 

NordProtect pairs proactive identity theft protection with identity theft recovery — it helps to safeguard your personal information and assists you in the event of identity theft. It notifies you of suspicious credit activity, scans the dark web for your personal information, and alerts you to potential data leaks before they become larger issues. If identity theft does occur, NordProtect helps cover eligible recovery expenses and provides professional assistance to guide you through restoring your identity so that you’re supported every step of the way.

The cost of identity theft insurance 

The cost of identity theft insurance typically ranges from $25 to $700 per year ($2 to $40 per month), depending on the provider, coverage options, and whether it’s bundled with identity theft protection services or other insurance policies. So check exactly what each provider offers and whether it fits your needs.

You may also choose an identity theft protection such as NordProtect, which offers several plans to meet the different needs of our users, with monthly prices beginning at $5.49/month. Considering it includes both proactive identity theft protection and coverage in case of theft, it’s an easy and cost-effective way to stay protected.

Key considerations when selecting identity theft insurance

Choosing the right identity theft insurance requires careful attention since policies differ in terms of coverage, exclusions, and added services. Some key factors to keep in mind include:

• Understanding coverage limits. Most policies have limits ranging from $10,000 to $15,000, but this can vary. Make sure the coverage is sufficient for your needs.
• Checking for deductibles. Some policies require you to pay a deductible, usually between $100 and $500, before costs are reimbursed. Verify this detail to avoid surprises.
• Reviewing exclusions. Most identity theft insurance services don’t cover direct financial losses, like stolen money, so be clear on what is and isn’t included in the policy.
• Evaluating lost wages coverage. If the policy covers lost income for time spent reclaiming your identity, check the limits and confirm how to trigger the benefit. For example, salaried employees may not qualify if they use paid vacation time.
• Examining legal fee coverage. If legal fees are covered, confirm how much the policy reimburses and whether you need pre-approval for legal services.
• Looking for bundles. Check if identity theft insurance is included with your homeowner’s policy or can be added for a small fee. If not, standalone policies are available through banks, credit card companies, insurers, or identity theft protection providers.
• Considering additional services. Identity theft protection services typically offer proactive security features like credit monitoring or dark web scanning. These features add value by helping you detect identity theft early.

When should you get identity theft insurance? If you’re concerned about the potential financial and emotional costs of resolving identity theft, this type of insurance can be a smart safety net. It’s especially valuable if you handle sensitive personal data frequently, shop online often, or lack other forms of identity theft protection.

Is identity theft insurance coverage worth having? 

Whether identity theft insurance is worth it depends on your personal needs and financial situation. While it doesn’t prevent identity theft or cover direct financial losses, it can make the recovery process significantly less stressful and more affordable.

That said, identity theft insurance does have its limitations. Most policies come with coverage caps and deductibles. It’s important to review the details of a policy carefully, especially its exclusions, limits, and any additional services that might enhance protection.

If you’re looking for a more comprehensive solution, NordProtect offers proactive tools to help you stay ahead of threats and identity theft recovery. With features like credit monitoring, fraud detection, and dark web scanning, it’s a great way to protect your identity.