What Does Identity Theft Insurance Cover?

Identity theft insurance provides financial protection to help individuals restore their identity and financial standing after an identity theft incident. It aims to alleviate the burden of expenses and time associated with rectifying the damage. This insurance does not prevent identity theft but offers support and resources for recovery.

Types of Identity Theft Covered

Identity theft insurance policies address various fraudulent activities where personal information is misused.

Financial Identity Theft

Financial identity theft involves using another person’s information, such as bank account or credit card numbers, to make unauthorized purchases, withdraw funds, or open new credit accounts. This can lead to financial disruption and damaged credit scores.

Synthetic Identity Theft

Synthetic identity theft involves criminals combining real and fabricated information to create a new, fictitious identity. This identity is then used to open fraudulent accounts, build credit, and commit financial fraud, often going undetected.

Medical Identity Theft

Medical identity theft occurs when someone uses another person’s name, Social Security number, or health insurance details to obtain medical services, prescription drugs, or file fraudulent claims. This can result in inaccurate medical records, affecting future healthcare, and may lead to unexpected bills.

Criminal Identity Theft

Criminal identity theft involves using another person’s identifying information during an arrest or legal proceedings. This can create a criminal record for the victim, leading to legal and employment complications.

Child Identity Theft

Child identity theft uses a minor’s personal information, like their Social Security number, to obtain credit, employment, or government benefits. Because children typically do not have credit files, this theft can go unnoticed for years, often until the child applies for their first loan or credit card as an adult.

Covered Expenses and Resolution Services

Identity theft insurance policies typically cover financial costs incurred during recovery.

Covered Expenses

These often include legal fees for resolving civil judgments or consulting with attorneys. Lost wages compensate policyholders for income lost when taking time off work to address the theft. Policies may also cover out-of-pocket expenses for services like notary fees, postage for certified documents, and replacing stolen identifying documents such as a driver’s license or passport. Some plans might reimburse for fraudulent charges not covered by other means, though direct financial losses from fraud are often limited or excluded.

Resolution Services

Beyond financial reimbursement, resolution services are a significant component of identity theft insurance. These services often provide access to fraud resolution specialists who guide victims through the recovery process. They assist with tasks like contacting creditors, banks, and government agencies to dispute fraudulent accounts and transactions. Specialists can also help with placing fraud alerts or credit freezes with major credit bureaus like Experian, Equifax, and TransUnion. Many policies include credit and identity monitoring services, which continuously scan for suspicious activity and alert policyholders to potential new fraud.

Understanding Policy Limitations

While identity theft insurance offers protection, it comes with specific limitations and exclusions.

Exclusions

Policies generally do not cover business losses resulting from identity theft, focusing on personal financial and identity recovery. Direct financial losses from investment scams or other non-identity theft related fraud are typically excluded. Losses stemming from acts committed by family members or individuals with authorized account access may also not be covered. Pre-existing identity theft issues discovered before the policy’s effective date are usually not eligible for coverage.

Policy Limits

Common policy limitations include deductibles, which are amounts a policyholder must pay out-of-pocket before coverage begins. These can range from $100 to $500, though some policies may offer no deductible for restoration services. Overall coverage limits establish the maximum amount the insurer will pay for a claim, typically ranging from $10,000 to $1 million for recovery expenses. These limits vary significantly by policy type and provider. It is important to review policy documents for precise terms, conditions, and any sub-limits that may apply to expense categories like legal fees or lost wages.

The Claim Process

Upon discovering identity theft, taking immediate steps is important to mitigate damage and prepare for an insurance claim.

Initial Steps

Policyholders should gather all evidence of the theft, including dates, affected accounts, and related communications. Contact financial institutions and credit bureaus promptly to report the fraud and secure accounts. Filing a police report with local law enforcement is crucial, and victims should request a copy for their records. Filing an Identity Theft Report with the Federal Trade Commission (FTC) at IdentityTheft.gov is essential, as this report provides official proof of the theft and assists in recovery.

Filing the Claim

Once these preparatory steps are complete, policyholders can begin filing a claim with their insurance provider. Contact the insurer as soon as possible, typically through a dedicated hotline or online portal, to report the incident. The insurer will generally require submission of gathered documentation, including the police report, FTC Identity Theft Report, and any evidence of fraudulent transactions or accounts. After submitting the claim, a case manager or identity restoration specialist is often assigned to guide the policyholder through the recovery process, helping to dispute fraudulent activity and restore their identity. This specialist assists with necessary communications, paperwork, and actions required to resolve the identity theft, often expediting a process that could otherwise take several months.