It's Your Identity: Who Should Protect It?
Anna Thayer
Each year, an estimated 700,000 consumers fall victim to identity theft--the number one consumer complaint, according to the Federal Trade Commission (FTC).
To make matters worse, it typically takes 14 months for a victim to discover identity theft and, once discovered, the average case takes 175 hours and $1,500 to clear up.
If these statistics raise a red flag for you, that's good. The best protection against identity theft is consumer awareness. But for those who think that vigilance is not enough, identity theft insurers and credit monitors want to come to your rescue. But are they worth it?
Identity theft insurance
Many insurance agencies now offer identity theft protection policies. Benefits vary, and coverage levels can range from $5,000 to $30,000. Many policies cover attorney fees, mailing costs, loan reapplication fees, phone charges, and lost wages for time taken off of work to deal with identity recovery. But identity theft policies do not provide reimbursement for fraudulent credit card charges--you must resolve those with the credit card companies and the three major credit reporting agencies (see the Useful resources sidebar).
There are three major types of identity theft insurance:
Freestanding policies;
Riders to your existing homeowners, condominium, or renters policy; and
Insurance employers make available to their workers.
The costs vary depending on the amount of coverage a consumer desires. Individual policies cost, on average, $25 per month.
Is it worth it?
"In theory, we support identity theft insurance because it helps compensate you for your time and lost wages during the clean-up process, but we do recommend due diligence in choosing a protection policy and company," says Jay Foley, director of consumer victim services for the Identity Theft Resource Center, a San Diego-based nonprofit organization dedicated to increasing public awareness of identity theft.
The average identity theft takes 175 hours and $1,500 to clear up.
Foley especially recommends identity theft insurance for anyone with a restricted income (because the fraud bites into the money you earn) and those on an hourly wage (because you may have to take time off of work).
But if you want the insurance primarily for the expert advice, keep in mind that most information an identity theft expert can provide already exists for free in government publications and on the Internet. And, the credit bureaus have counselors that walk consumers through the identity recovery process for free.
Credit monitoring
Credit monitoring companies monitor a consumer's credit report, track changes, and provide regular reports--either online or in the mail. If the company detects a problem, customers are provided with the forms needed to request changes at the credit bureaus. The credit monitoring company also sends the customer a follow-up credit report to make sure the errors were corrected.
Some credit monitoring companies even offer a credit analysis in their regular reports, and provide advice on how to improve a credit score.
Is it worth it?
Foley points out that, while it's a good idea to track activity on your credit report, these services generally are not comprehensive.
Most information an expert can provide already exists for free.
"Our primary complaint is that most or all of these companies rely on information from only one of the three major bureaus, but the reports are not mirror images of each other and consumers need to check all three," says Foley. Approximately 80% of credit information is the same in all three reports.
In addition, even if you use one of the services, you still need to be vigilant. Not all forms of identity theft appear on a credit report. For example, if someone used your identity to commit a crime, and a warrant was issued in your name, it would not appear on your credit report.
Anyone who was previously a victim of fraud or inaccurate credit reporting (estimated to be half of all consumers), and anyone whose reporting agency has made more than one mistake may benefit from using a credit monitoring service.
If you don't want everything offered in a credit monitoring service, but still want to be informed of changes in your credit report, you might want to consider a fraud alert service. This is similar to credit monitoring, but the company flags your file with alerts when a change on your report appears to be the result of fraud. However, like credit monitoring, many of these companies watch only one report instead of all three.
And keep in mind that the FTC and the major credit bureaus can provide many of the same services for free. For example, if you suspect you've been the victim of fraud, call the major credit bureaus and they will flag your file.
Do-it-yourself options
Before you shell out the money to have someone else protect your identity, remember that you can do it yourself. The services mentioned here only help you discover identity theft earlier and aid you in clearing your name.
Consumers on a restricted income or paid an hourly wage may want to obtain identity theft insurance.
To reduce the likelihood of having your identity stolen, order a credit report at least once a year from all three credit bureaus and examine each report carefully. There's usually a fee to order reports--about $8 per copy (about $13 if you order a combination credit report and credit score). But if you've been turned down for a loan because of information on your credit report, or if you're an identity theft victim, you can get a free copy.
If you suspect that you have been the victim of identity theft, experts recommend you take these steps:
Call the FTC's Identity Theft Hotline at 877-438-4338, or file a complaint online.
Contact the fraud departments of the three major credit bureaus, Experian (888-397-3742), Equifax (888-766-0008), and Trans Union (800-888-4213). Tell them to flag your file with a fraud alert.
Contact the security or fraud department of any of your accounts that have been tampered with or opened fraudulently.
File a report with either your local police or the police where the theft took place.
The bottom line?
Before you sign up for an identity theft protection service, be sure you know about the company. Although many of the products and services are legitimate, there have been cases of fraudulent companies.
Anyone whose reporting agency has made more than one mistake may benefit from using these services.
The most important thing when dealing with identity theft is to be careful with your documents and watch out for suspicious activity. Whether you decide to use an identity theft protection service is simply a matter of what makes you feel secure.
Published November 25, 2002
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