What Is Identity Theft Insurance?

Identity theft insurance is a relatively new product offered by some insurance companies. When you purchase this policy, you are insuring yourself against the costs associated with resolving an identity theft case. It should be noted that while this policy will cover your costs, the insurance company will not actively contact your creditors directly and work with them on your behalf to resolve the issues related to the identity theft.

Most creditors with only deal with their client directly (that means you), so purchasing this insurance does not mean that you will be totally insulated from the negative consequences of being an identity theft victim.

Federal law limits your liability to just $50 in the event of identity theft, provided that you report what has been stolen within 48 hours. Victims are not held accountable for the financial crimes of the thieves. However, the process of repairing your credit and clearing your name can be costly. Legal fees and court appearances will likely be necessary. There will be documents to notarize and plenty of certified mail to be sent. Identity theft insurance will typically cover these expenses.

If the police are successful in catching the criminal, you will likely be required to testify in court. This could mean taking time off from work and associated lost income. Most identity theft insurance policies will cover lost wages for court appearances, provided, of course, the the court appearances are directly related to the identity theft case.

As with all purchases, make sure you know exactly what you are receiving before you buy. Have your local independent insurance agent explain the details contained in the policy and review what exactly is covered for expenses and what isn't. An alternative to this would be to have your attorney review it in the same manner.

Additionally, if you decide to buy an identity theft insurance policy, check out the insurance company with your local Better Business Bureau, consumer protection agency and state Attorney General to see if they have any complaints on file against the company.

While these policies can't do anything to help you take care of the mess that's been made of your finances (you'll simply have to plow through that heavy work yourself), the benefit of not losing any more money as a result of the crime is one solid reason to consider identity theft insurance.

Because this type of insurance is relatively new, there may be companies that are offering it that are of questionable financial soundness. Whenever you purchase any type of insurance, it is always best to check the financial rating of the company that you are intending to buy from. A.M. Best rates insurance companies based upon sound financial practices. It is recommended that you only buy from companies that have earned the rating of "excellent" or higher. You can find this information at your local library.

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