Do You Need ID Theft Insurance or Credit Monitoring?

You'd have to be living under a rock not to be concerned about identity theft. It seems like every other month there's a new report about another massive data breach somewhere in the world.

Not surprisingly, a thriving industry has sprung up around helping to protect consumers from identity theft. Most of these services are pretty expensive and many consumer organizations argue that they merely take actions you could easily carry out yourself for free. But if you don't have the time or wherewithal, you may want to enlist a professional to help unravel the mess.

Following are some of the identity theft prevention services being marketed, as well as questions to ask when considering them:

ID theft insurance is commonly offered as a rider to homeowners or renters insurance and typically costs $25 and $60 a year. Note: it doesn't protect you from being victimized in the first place nor does it cover direct monetary losses resulting from identity theft. Rather, it reimburses costs associated with reclaiming your financial identity (e.g., phone calls, making copies, mailing documents, wages lost when pursuing resolution and hiring an attorney).

Questions you should ask:

• What are the policy's limits?
• Is there a deductible?
• If lost wages are covered, what limits apply and what triggers this coverage?
• If legal fees are covered, what limits apply and must the insurer preapprove the work?
• How much personalized assistance will you get – will they assign a case manager to execute on your behalf or merely give you a checklist to follow?

Credit monitoring services track your credit reports and contact you whenever key changes occur – things like new accounts opened in your name, address changes, credit inquiries and increased credit limits. They usually cost from $10 to $30 a month and services provided are all over the map. For example:

• Some monitor and provide credit reports from all three major credit bureaus; but some only track one.
• More expensive plans provide additional services including monitoring public records, black market website surveillance, and computer protection programs like antivirus and keystroke encryption software.
• Some provide one or more free (or low-cost) credit scores.

Keep in mind when considering whether to buy credit monitoring:

• Many creditors report information to all three credit bureaus, but some only report to one, so your three credit reports may contain different information.
• Because many lenders only report activity to credit bureaus monthly, it could take weeks before your monitoring service spots fraudulent behavior.
• Ask how you'll be notified of flagged changes (email, text and/or mail) and how frequently (daily, weekly, monthly).
• You can order one free copy of each credit report from www.annualcreditreport.com per year, so by staggering them, you could get a different report every four months.

If you know – or fear – that an account has been compromised but don't want to fully block access to your credit reports through a credit freeze, you can place a free, 90-day initial fraud alert with the three credit bureaus. This means businesses must verify your identity with you before opening new accounts.

You can renew the alert after 90 days. If you don't want to be bothered remembering, some monitoring services will file your renewals for a fee.

For more tips, see the Federal Trade Commission's "Privacy and Identity" page at www.consumer.ftc.gov/topics/privacy-identity.

Bottom line: Do you want to monitor your own credit (which is free but time-consuming) or hand off the task to a third party and pay hundreds of dollars? Either way, make sure it gets done.