Identity Theft Insurance

What is it and do you really need it.

By Jacquelyn Lynn

According to the FBI, identity theft costs American businesses and consumers a reported $50 billion a year and causes untold headaches for an estimated 10 million U.S. victims annually. Identity theft crimes include credit card fraud, various types of consumer fraud, employment fraud, tax fraud, medical fraud, and more.

Our economy is substantially credit-based, and access to credit is important to just about everyone, but especially to real estate investors. While victims are usually not responsible for the debts incurred by identity thieves, they still have to clean up the mess. That process is slow and time-consuming, involving phone calls, letters, and possibly thousands of hours of work.

The battle against identity fraud has created a cottage industry of sorts in the form of credit monitoring and protection products. Increasingly, insurance companies are offering coverage that pays expenses (such as notary and certified mailing costs, telephone costs, fees for reapplying for loans that were turned down due to ID fraud, and some attorney fees) and even reimburses lost wages for time taken off work to deal with the problem. Some insurance programs include assigning someone to do most of the paperwork for you to minimize the time you spend cleaning up your credit.

Not all ID fraud policies are the same. If you decide to spend the money on this type of insurance, be sure you're getting coverage worth having. Find out exactly what the policy will pay for, what the limits (the maximum amount paid) are, what the deductible is, and what you have to do to file a claim. Ask if the policy is restricted to identity theft involving credit fraud or if it will pay if you are the victim of other types of identity fraud.

Some homeowner policies include identity theft coverage either as part of the basic policy or as an endorsement you can purchase. But these policies may not cover identity fraud if it happens in the context of your business. A number of insurance companies have introduced identity theft products targeted to business owners, and you may want to discuss that with your agent.

There is no magic bullet

If you're considering identity fraud insurance, keep in mind that insurance does not prevent you from becoming a victim, it's an after-the-fact component in dealing with the situation if it happens. And nothing can compensate you for the emotional trauma. Don't let insurance give you a false sense of security. Be proactive in protecting your private information and monitoring your credit report and other accounts for suspicious activity. These tips will help reduce your risk of being an identity fraud victim:

• Keep your personal information secure. Store bank, mortgage, and credit card statements along with any other documents containing private information in a safe location only you can access. It's not uncommon for the ID theft victim to know the perpetrator, so secure your information at home and in the workplace.

• Do not give your Social Security number to anyone or any company unless you know who you're dealing with, why the information is needed, and how it will be used.

• Shred any documents containing personal information before discarding them.

• Review your files with all three major credit bureaus at least once a year. If you have minor children, review their files as well. Follow up on any item that does not appear to be accurate.

• Monitor all of your accounts—bank, investment, insurance, and others—regularly. Many types of identity fraud won't show up on a credit report so be sure you're checking the accounts not in your credit file.

• Be cautious when disclosing personal information. Don't give out personal information over the phone unless you initiated the call. Do not respond to e-mail requests for information, no matter how urgent or intimidating they seem.

• Carry only the documents and credit cards you need. Remove the credit cards you rarely use from your wallet. Don't carry your Social Security card, passport, or birth certificate unless necessary, and if you need them, keep them separate from each other and your driver's license.

• If you pay bills by mail, take the mail to the post office instead of leaving it in your home mailbox for the carrier to pick up.

• Create passwords and personal identification numbers that are unique and hard for someone else to guess. Avoid using easily available information, such as children's or pets' names, dates of birth, telephone numbers, or addresses. Use a combination of letters, numbers, and symbols, and change your passwords regularly. Don't use the same password for multiple accounts. If you write your passwords down, keep that information in a secure place.

• Consider placing fraud alerts on your credit files. Credit grantors will be asked—but not required—to contact you before extending credit.

• Review your Social Security account once a year to verify that your income figures are accurate. Not all identity thieves are interested in stealing from you. Some simply want to use your identity for fraudulent reasons, such as work documentation for illegal aliens.

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Jacquelyn Lynn (www.jacquelynlynn.co) is the author of Entrepreneur's Almanac and a regular contributor to Entrepreneur magazine.