Identity theft is big business -- and not just for thieves. With more than 10 million Americans affected annually, companies are marketing insurance and credit-monitoring services designed to help potential victims maintain the good credit that's key to securing loans, opening charge accounts, and even passing employers' background checks. Buying such products might make sense if you worry about becoming a victim and think you'll want help with the cleanup. But some can be expensive. So before putting money down, weigh the costs against the potential benefits.
Although identity-theft victims are usually not held liable for fraudulent credit-card charges, they can still pay a big price. On average, the victims of the most serious form of ID theft -- which occurs when thieves run up debts in charge accounts they open in your name -- spend $1,200 and 60 hours cleaning up their credit, the Federal Trade Commission reports. Those who must take off time from work to file police reports or make contact with creditors have even more to lose -- as much as $16,000 in wages, according to the nonprofit Identity Theft Resource Center in San Diego.
Then, there's the emotional toll -- although insurance can't help with that. "It's scary that someone is out there pretending to be you...and doing bad things," says Jane, a New York resident who doesn't want her last name published for fear of jeopardizing a police investigation into her case. Since March, an identity thief has opened six charge accounts in her name, racking up over $8,000 in bills.
Jane estimates she has spent $200 on photocopies, certified letters, and travel to file police reports. Those are just some of the expenses typically covered by identity- theft insurance. Available from a growing number of insurers and credit-card companies, policies are getting more elaborate, providing for more than simple reimbursement of costs. For example, Allstate (ALL) customers who have homeowner's, renter's, or condo insurance policies in Arizona, Illinois, New York, or Texas can buy coverage for about $30 a year -- the exact amount varies from state to state. It pays for someone from research and investigation firm Kroll (MMC) to fill out police documents and fix your credit report. The service is slated to go nationwide in 2005, says Allstate spokesman Bill Mellander. Along the same lines, St. Paul Travelers sells a service to businesses -- who can then make it available to employees or customers -- that assigns victims to case managers. They will sit in on telephone calls and otherwise assist with the recovery process, says the company's identity-theft product manager Joseph Lester.
Most of these policies have relatively low annual premiums -- ranging from $25 to $40. Chubb's (CB) is even free to customers with homeowner's insurance. Since the FTC reports that the average victim spends $500 on such items as travel and certified letters, while those who discover that new accounts have been opened in their names shell out more than twice that amount, the payoff could more than justify the cost. The argument in favor of insurance is particularly strong if you're self-employed and would forfeit substantial income if you have to take off time from work to straighten out your identity mess. "If the premium is cheap and it comes from a legitimate insurance company, it could be worth it for the peace of mind," says Edmund Mierzwinski, consumer program director at U.S. Public Interest Research Group (PIRG), a nonprofit organization in Washington. Still, Mierzwinski cautions that PIRG has yet to receive consumer feedback -- positive or negative -- on this form of insurance.
Before buying any policy, make sure it covers the most expensive items that victims can face, including lost wages and any fees to hire lawyers to dispute criminal charges or fight off collection agencies. Some policies cap these benefits. The insurance American Express (AXP) offers its cardholders, for example, costs $59.95 a year and covers up to $2,000 for lost wages and $5,000 for attorney's fees.
Although many policies have no deductible, watch out for those that do. A $100 deductible may be no big deal if your reimbursable expenses run about average. But it can make the insurance less worthwhile if -- like Jane -- you have out-of-pocket costs that are minimal.
When shopping for insurance, start with the company that underwrites your homeowner's or renter's policy. Typically, insurers offer identity-theft coverage as a rider, or attachment, to such policies for an additional annual premium. Credit-card companies besides American Express offer stand-alone insurance to cardholders. Visa, for example, makes the insurance available to its member banks, who can then offer it to cardholders.
As always, beware of mail, e-mail, and phone solicitations, since guarding personal information is key to preventing identity theft. "If you receive a solicitation from any source, even if it's one that appears familiar, don't provide information unless there's some means to authenticate the person who is asking for the information," says Betsy Broder, assistant director for planning and information at the FTC.
Meanwhile, credit-card companies and reporting agencies have long been offering "credit-monitoring" services. These notify you if your credit report changes for any reason, such as the opening of an account in your name. At $60 to $150 a year, consumer advocates say the cost of these services is too high. "I call it a protection racket," says Mierzwinski.
GET IT FREE
Instead, take advantage of a law that goes into effect between December, 2004, and September, 2005. The law, which rolls out in different states at different times, allows consumers to get one free credit report a year from each of the three major credit agencies: Experian, Equifax (EFX), and TransUnion. For maximum protection, you should stagger the reports so that you receive one about every four months, says Shirley Rooker, president of nonprofit consumer service, Call For Action. (For more on the new law, go to www.ftc.gov/bcp/conline/edcams/credit/index.html).
You can get plenty of other help in resolving identity theft without spending a dime. At the FTC's Web site, www.ftc.gov, you'll find detailed instructions on how to stop and prevent ID theft and restore your credit. Call For Action runs a toll-free phone service, 866 ID hotline, that's backed by Visa and staffed by counselors trained to assist identity theft victims. Of course, with some of the newest insurance products, you can have someone spare you the trouble of doing all of the dirty work yourself.
By Anne Tergesen