Paying for ID Theft Protection Is Not Necessary
ID-theft insurance and credit monitoring services may seem like great safeguards. Find out why some experts disagree.
By Kimberly Lankford, Contributing Editor
From Kiplinger's Personal Finance magazine, April 2008
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Fear of identity theft has spawned a huge industry of protection-related products. But you can do a lot of the same things on your own without paying a fee.
For instance, credit bureaus and others pitch expensive credit-monitoring services on their Web sites. "We don't feel that credit-monitoring services are worth it," says Paul Stephens, of the Privacy Rights Clearinghouse.
Stephens points out that putting a fraud alert on your account entitles you to a free copy of your credit report from each of the three credit bureaus every 90 days. Add in the free annual reports you can get from each bureau at www.annualcreditreport.com, and you're entitled to 15 free credit reports every year. And if you really want protection, says Stephens, the best thing you can do is limit access to your credit report with a security freeze.
In many cases, identity-theft insurance is also a poor investment. Some policies tout $10,000 or $20,000 of identity-theft reimbursement. But, says Stephens, "the out-of-pocket costs for ID theft are usually quite small." You're liable for only $50 in unauthorized credit-card charges, and that's usually waived. According to a Federal Trade Commission study, in more than 50% of the cases, victims incurred no out-of-pocket expenses for ID theft.
The biggest burden is the time you spend fighting back. In that same FTC study, the median amount of time spent resolving ID theft was four hours. And 10% of the victims spent more than 55 hours resolving their problems.
Some policies include identity-theft-resolution services, which provide experts to do the legwork for you. But before signing up, ask about how much personalized assistance you're actually going to get.
Make sure the policy helps resolve medical, criminal and employment-related issues -- in addition to dealing with lenders -- and addresses the expense of hiring a lawyer if necessary. "That's what you want the insurance to cover," says Christine Nielsen, assistant attorney general in the Illinois consumer-fraud bureau.
You may already have some protection. Some banks, such as Washington Mutual, automatically provide ID-theft insurance to checking-account holders. Some insurers, such as Chubb and Fireman's Fund, include ID-theft coverage in their high-end homeowners-insurance policies. And you can get free help from the Identity Theft Resource Center, the Privacy Rights Clearinghouse and the attorney general's office in some states. Illinois has an ID-theft hotline, for example, and can help residents resolve problems; see www.naag.com for a link to your state Web site.
Reader Comments (12)
Posted by: Pam at 03/26/2008 12:31:33 PM
I abide by common-sense when posting online. Even reverse lookup on your phone number posted online gives away your street address. To prevent ID theft I recommend never posting your phone number online, instead use anonymous calling...
Posted by: SC Seahawk at 03/26/2008 01:15:39 PM
What is not mentioned is what happens if your medical identity, drivers license, etc is compromised. There is no way to rectify the databases. When the databases were created there was no way to fix false identities once they are entered. One database feeds others and when they are refreshed, the false identity keeps ciculating.
Posted by: Denise Richardson at 03/26/2008 03:05:33 PM
I feel it's important to clarify a few comments concerning our rights to free credit reports… We are not allowed 15 free credit reports a year. Under federal law, we can obtain a free annual credit report from all three bureaus if we find our way to the official site which is annualcreditreport.com. We are also entitled to a free report if a company takes adverse action against us, such as denying our application for credit, insurance, or employment, and we ask for our report within 60 days of receiving notice of the action. The notice will then give us the name, address, and phone number of the credit bureau which supplied the information that the perspective creditor based his adverse decision on. Consumers are also entitled to one free report a year if they are unemployed and plan to look for a job within 60 days; if they’re on welfare; or if their report is inaccurate due to fraud or identity theft. I think it's also important to note that even though in some cases consumers are only liable for $50 in unauthorized credit-card charges, there is often a hefty financial and/or emotional price paid while trying to correct the mess. When credit reports remain flawed - so too are our credit scores –scores that determine our interest rates, insurance premiums, ability to obtain employment, housing and financing. All too often the real effects of identity theft are easily downplayed by those who have yet to experience any one of the frustrating roller coaster rides one must take to recover their identity once compromised or stolen. I don't find value in simple credit monitoring services that alert us to a mess after fraud is reported, I do find value in services that include restoration services as mentioned in this article. Whether it’s a medical, employment, financial or reputation identity theft caused by a data breach, dumpster diver or a thief who steals my laptop, credit card numbers, wallet or a criminal who breaks into my computer, home, car or office, I find peace of mind knowing that I have someone in my corner whose job is to “fix” the problem –and not simply notify me that one exists.
Posted by: Jim Malmberg at 03/26/2008 03:06:08 PM
While I don't believe there is much value in ID Theft Insurance, and there is no value in credit monitoring, there are...statements in this article that I have to take issue with. First, (that consumers) will only be liable for $50 if their identity is stolen. That figure only applies to fraudulent credit card usage. It does not apply to debit card use, or other fraudulent access to bank/checking accounts. In fact, consumers can be liable for the entire amount stolen from bank accounts directly or through debit card usage if they don't catch the fraudulent activity early on. Secondly, the idea that consumers can continue to issue fraud alerts against their credit files is currently being tested in court....It should also be pointed out that getting a copy of your credit report after identity theft has occurred - whether it is through a credit monitoring service or on your own - is akin to closing the barn door after the horse has already gotten out. Neither practice will prevent you from becoming an identity theft victim, nor will they help you clean up the mess after you have been victimized...
Posted by: Brian Smith at 03/26/2008 08:35:59 PM
...Put a fraud alert on your credit report, (you) might as well stamp liability on their credit report as well because that's what lenders are going to be thinking when they see that fraud alert!! Credit freeze, lock down your identity so that not even you can access it and on top of that lets put a couple marks on your credit report every 90 days when you reissue your credit freeze. Those are not viable solutions!...At least talk about the solution...You are right in regards to protecting all other areas of your identiy (criminal, financial,medical, SSN, and Criminal), but i highly doubt that (a) homeowners insurance policy is going to cover those areas, will they?
Posted by: Kimberly Lankford at 03/28/2008 09:33:37 AM
Thanks for your comments about my article. I do want to clarify some of points that have been made in this forum. My article is correct that you can receive 15 free credit reports per year if you file fraud alerts. Filing a fraud alert entitles you to a free credit report from each of the three bureaus; you can re-file a fraud alert every 90 days. Add to that the three free credit reports you can receive from www.annualcreditreport.com, and you can get as many as 15 free credit reports per year. Also, it is true that the rules about identity theft liability are different for credit cards than they are for debit cards. But there are also limits on that liability, too – your debit-card liability is generally limited to $50 if you report the problem within two days and $500 if you notify the bank within 60 days. The Federal Trade Commission study found that victims ended up with no out-of-pocket costs for this type of ID theft in 50% of the cases. The larger problem is that the crook can clean out your checking account and banks generally have up to 10 days to investigate and replenish your account – leaving you without access to the money during that time. That is why it is important to be careful with your use of debit cards, which I wrote about in the main article, "Your ID Theft Prevention Kit." As I mentioned in the article, the most valuable piece of any ID theft insurance policy is the ID theft resolution service, which can provide you with experts to do the legwork for you. But first find out whether there are limits on the types and amount of help the policy can provide. Finally, having a credit freeze or fraud alert on your account has no impact on your credit score.
Posted by: AG at 04/03/2008 06:12:12 PM
I completely disagree with the article that monitoring services are unneccessary...I have been subscribing to IdentityGuard for several years now. The greatest advantage is that I get a notification within 24 hours whenever there is an inquiry on my account and complete details about it. I get a chance to stop identity theft in its tracks. While no protection is fool proof, this is still a very significant head start....I feel I am paying a very small price for this extent of services.
Posted by: Melody at 07/23/2008 10:45:14 AM
I agree with the article. Before signing up for any ID theft product read the terms and conditions. ( i couldnt find this for one of the products another person mentioned in their comments.) If you cannot access this for free from the website without signing up then walk away. Some of the ones I've checked out give you commissions for every product you sell to others. I read one that stated the most they are responsible for refunding to you is the amount you paid to them even if they accidently disclosed your personal or financial information to someone else...Read the fine print. Individuals ID is used for employment, file tax returns, Drivers licenses, utilities, cash checks, use your medical insurance, etc...Most of the polices sold will only pay money if there product failed in what it promised....You can dispute anything on your credit report for FREE. You do not need to pay someone money for something you can do for free. Check with the Federal Trade Commission or your States Attorney General's office for more information.
Posted by: tc at 07/24/2009 11:48:02 PM
To AG and others who believe they are getting protection from any monitoring service....Your monitor service will tell you something happens on your credit report but it will not keep someone from opening an account using your name and social security number. The FREE fraud alert that anyone can place on all three credit reports every 90 days, just by calling the automated system of one credit reporting agency, will keep anyone from being able to open anything - Not just let you know when it happens - by the time your monitor service lets you know, it is too late to prevent fraud application approval and prevent thousands of dollars being spent when the perp is given instant credit in department and jewelry stores.
Posted by: tc at 08/08/2009 02:03:41 PM
You can do everything free, on your own, and better than any monitor service. A monitor service will not stop the perp who goes into Home Depot and uses your info for credit and walks out with $10,000 worth of building supplies. Your monitor service will let you know everything about the inquiry as you say, but it will not stop the perp from being approved with your good credit. Only a fraud alert or freeze will do that. After you are notified by your service and call Home Depot, if the inquiry is ID theft, you will find you have a new Home Depot account with a $10,000 balance and you have to dispute it not your monitor service. They will even use your address and send the card to you because the perp doesn't need it. He/she already got the merchandise. I work in an ID theft prevention/assistance office and we help victims call everywhere to dispute and the victim always has to be on the phone too. If you don't have the fraud alert or freeze you are vulnerable even though you have a monitor service. I hear victims everyday say "How did this happen, I have a monitor service?" After we explain they say "Then why am I paying this monitor service?" We don't have an answer for that.
Posted by: Kate at 08/17/2009 11:45:37 AM
I'm not sure if I agree with this article. I'm thinking of signing up for an Identity Protection service. I recently found out that my identity was stolen. Someone opened cell phone accounts in my name and with my SSN. The only reason I found out about this was due to a collection agency calling my home since the user never paid the bills. I regularly check my credit reports however cell phones, cable and utilities to name a few are NOT included in this report. Therefore no ammount of checking is going to help safeguard from this type of identy theft. Identity Guard claims that they also monitor cell phone accounts open in your name. Without the help of this type of system, I don't know of any other way to monitor that type of activity on my own. Now, I do agree that it is very easy for someone to place the fraud alerts or security freezes on their account on thier own as I recently went through that process. But I do wonder that if I had already subscribed to ID theft insurance such as Identity Guard, that I might have known about these cell phone accounts BEFORE they went to a collection agency which made my credit score go down.
Posted by: tc at 08/24/2009 10:25:18 PM
Why dont you guys want to protect yourselves for FREE? I dont get it. A fraud alert is FREE and it is all you need!!!!!! Monitor services do nothing to stop the cell phone or account from being opened! The FREE fraud alert does!!!! Call one of the credit bureau's automated system and choose the option to apply a fraud alert - punch in the phone#s that you want to be called at whenever an application is submitted with your information and you will be called and have a chance to say it is not you. IT IS FREE and you can renew it every 90 days FOR FREE!!!