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Identity theft insurance

Insurance companies and other financial companies have discovered a new source of income. They are taking advantage of the growing consumer concern regarding identity theft. Identity theft claims approximately 10 million victims per year according to estimates by the Federal Trade Commission and Javelin Research.

While the policies may differ in the details, they typically cover reimbursement for lost wages, attorney’s fees and out-of-pocket expenses you incur trying to clear up your credit after you’ve been victimized. Some companies even promise to help you through the process with advice, guidance and forms.

What are the different sources of insurance and the basic deal?

  • From your property insurer such as Farmers, Fireman’s Fund, Traveler and Chubb coverage is offered as a $25- to $50-a-year add-on to your homeowners or renters policy.

  • From your bank or credit card company there are variable coverages. Some Visa credit card issuers offer coverage, ranging from $1,000 to $15,000, to their customers as a freebie. Washington Mutual provides $5,000 coverage free to account holders, you can also upgrade to $15,000 in coverage and get full-service credit monitoring for $10 a month.

  • From a credit monitor. Privacy Guard is among the credit-monitoring companies that includes coverage (up to $10,000) for those that subscribe to its services, which start at $12.99 a month for one-bureau monitoring.

  • Insurers know that providing such coverage is remarkably cheap since most identity-theft victims never pay a dime out of their own pockets. Most identity theft is of the “account takeover” variety, where someone uses your credit card or debit card number to buy stuff. You’re typically not liable for those charges. Hence some banks offering coverage for free.

    The most serious kind of identity fraud is when the thief opens new accounts in the victims’ names, here the victim typically pays about $1,400 out of pocket, according to the Identity Theft Resource Center.

    In insurance circles, that’s a drop in the bucket.

    The real cost to victims is the loss of their time as they try to deal with the aftermath. Those dealing with new-account fraud may spend 500 to 600 hours trying to repair the damage. These hours are often during the victims normal working hours, so a loss of wages can be incurred.

    The good news? The insurers have thought of lost wages. The bad news? Insurers limit their exposure to losses by putting restrictions on how much you can claim in “lost” wages. The average lost-wage coverage limit is $500 a week for four weeks.

    If you’re considering this coverage, you will want to ask exactly what it takes to qualify for lost-wage reimbursement. You should also check into coverage for legal fees. You will want to know if there is coverage and exactly what is covered should this be needed.

    Other things you should know about the coverage are the policy limits, deductibles, and what, if any, actions are taken by the insurer to aide you in repairing the damage to your identity and/or credit reports.

    If you’re thinking of purchasing coverage through a credit monitor, make sure the service checks all three credit bureaus regularly. Many services monitor only one bureau. Since the bureaus are private businesses that don’t typically share information, you could have a problem show up at one of the unmonitored companies and never know it.

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