Should you get Identity Theft Insurance or Credit Monitoring Services

As we consider the issue of paying for identity theft or credit monitoring services, it’s worthwhile to consider them as separate options.  I’m not a fan of credit monitoring services because you can do this easily yourself, and you get little benefit from paying a firm to do the work for you.  The credit monitoring companies don’t know what credit you have applied for, or whether you have paid your bills on time.  Only you know those things.  So, you should be able to request your free credit report once per year (you are entitled by Federal law to a free report annually) and to check it.  The credit firms don’t do more than just get that report for you. 

Also, those firms promise to help you to recover money if your credit is stolen.  But credit card companies are responsible for covering your losses anyway (after the first $50).  So spending spending $10-15 per month for a credit monitoring service doesn’t seem worthwhile. 

ID theft insurance is different.  Federal law requires that if you are the victim of unauthorized credit card usage or other theft, your credit card issuer and bank are responsible for your loss in excess of $50.  So in that sense, insurance isn’t worth it. 

However, it’s more complicated than that.  First, the companies do monitor the use of your credit cards, and they will contact you if a series of charges seem out of line with your typical purchases (which might indicate that someone has your ID and is buying stuff online).  This will help you stop the problem quickly. 

Also, some ID theft insurers add a provision to cover you for lost wages for the hours you spend trying to repair your credit record.  Depending on your income level and the extent of the theft, this insurance can be worth a lot of money to you.  It’s been said that the typical person who suffers ID theft will have to spend 50 hours over the next year to fix it, through calling credit card issuers and banks, sending faxes, following up on information, and so on.  If you are earning $20/hour, then that’s $1,000 that your insurance might cover.

So, if you are interested in ID theft insurance, find out what it covers.  If it costs very little and it provides income replacement, then maybe it’s a good idea.