|
|
|
|
| The Basics | Insurers profit from your identity-theft fears
|
Insurance companies would love to sell you a policy to cover identity-theft losses. These deliver big profits to them but little benefit to you.
By Liz Pulliam Weston
Insurers and other financial companies have found a nice new profit center: identity-theft insurance.
Providers are capitalizing on consumers' growing fear of identity theft, which claims about 10 million victims a year, according to estimates by the Federal Trade Commission and Javelin Research.
The policies differ in the details, but they typically promise to reimburse you 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.
There are plenty of places to find this coverage:- From your insurer. Several property insurers (Travelers, Farmers, Fireman's Fund and Chubb among them) offer the coverage as a $25- to $50-a-year add-on to your homeowners or renters policy.
- From your bank or credit card company. Some Visa credit card issuers offer coverage, ranging from $1,000 to $15,000, to their customers as a free perk. Washington Mutual provides $5,000 coverage free to account holders, or you can 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.
People are increasingly aware that, despite taking every precaution, they're still vulnerable to identity theft because so many businesses are sloppy with private financial information. Shall we review just a few recent examples? - A computer hacker accessed up to 40 million account numbers being stored by a credit card processing company that handled MasterCard, Visa and American Express transactions for small businesses. Tucson, Ariz.-based CardSystems Solutions admitted it shouldn't have been storing the numbers in the first place.
- Citigroup said UPS lost a box of computer tapes that was being shipped to an Experian credit bureau facility. The tapes, which were not encrypted, contained personal data for 3.9 million customers, including account information, payment histories and Social Security numbers.
- Bank of America lost a shipment of back-up computer data tapes that had Social Security numbers and account information on up to 1.2 million federal employees, including several U.S. senators.
It's not surprising that privacy advocate Beth Givens wishes the financial-services industry would put a little more energy into protecting our data rather than in selling us solutions for use after a theft.
"Other consumer advocates and I feel that the financial-services industry should not be profiting from identity theft," said Givens, head of the Privacy Rights Clearinghouse.
The real cost to the victim
And profit they do. Insurers know, as should you, 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.
Related news and commentary on MSN Money
The people who have to deal with the most serious kind of identity fraud, which involves new accounts being opened in the victims' names, typically pay about $1,400 out of pocket, according to the Identity Theft Resource Center.
In insurance circles, that's chump change.
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.
Insurers set the limits
Insurers typically limit their exposure to these losses by putting restrictions on how much you can claim in "lost" wages. Farmers is fairly typical; it limits lost-wage coverage to $500 a week for four weeks.
Givens said you may have a tough time claiming lost wages if, like many people, you're on salary or your employer requires you to take vacation or sick time to cover your absences. In those cases, you're not out any wages per se.
If you're considering this coverage, you'll want to ask exactly what it takes to qualify for lost-wage reimbursement. You'll also want to find out if, when and how much you can be compensated for legal fees, said Jay Foley, co-director of the Identity Theft Resource Center and husband of a victim.
The lowdown on legal fees
Relatively few identity-theft victims have to hire legal help, Foley said, but costs can mount quickly for those who do. If you've purchased the coverage, you'll want the financial help "if it gets to the point where you have to go toe-to-toe" with recalcitrant lenders.
Other questions you should ask:- What are the total policy limits? If the coverage isn't free, $10,000 to $15,000 is typical.
- What's the deductible, if any? Some policies have no deductible; others want you to pay the first $100, $250 or $500 up front.
- What kind of information or advice do you offer if I am victimized? The resources offered vary widely, from referrals to Web sites to dedicated specialists who actually do some (although rarely all) of the work for you.
Foley, by the way, doesn't have this insurance. The coverage has too many limitations, and "I think I have enough knowledge to clean (identity theft) up if it happens," he said.
Givens doesn't think it's a bad idea "if it's free, or $25 a year or $2 a month. I don't think that's too much to pay."
Consider whether it works for you
Personally, I think insurance is best reserved for those situations you can't easily pay for yourself. If you buy this coverage simply to pay the cost of overnight mail, long-distance phone calls or notary fees -- in other words, the typical out-of-pocket expense faced by account-takeover victims -- it's a particularly bad deal.
If you're likely to be prevented from claiming lost wages, the coverage also might not be of much use. In that case, you're paying largely for the legal coverage, if any. Only you can decide whether the cost of the policy is worth protecting yourself for that remote possibility.
One more thing: If you're thinking of purchasing coverage through a credit monitor, make sure the service checks all three credit bureaus regularly. (Washington Mutual's paid service, ID Theft Inspect, offers daily checks on all three.) 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.
Liz Pulliam Weston's column appears every Monday and Thursday, exclusively on MSN Money. She also answers reader questions in the Your Money message board.
|
|
|
|
