Is Insuring Your Identity Against Fraud Worth It?
Anyone who isn't in a high state of alert about safeguarding his or her identity is either in massive denial or is a fatalist. The data breach at Anthem put about 80 million consumers at risk of ID theft, states are seeing a spike in fraudsters using stolen identities to file for income tax refund checks and new hacks seem to be discovered every week. That's made ID theft protection a booming industry, with new products being launched and existing ones tweaked to help with, and profit from, the anxiety.
H&R Block is the latest player to get into the business. In January, it launched "Tax Identity Shield," which, for $29.95 a year, does an annual, pretax season scan for your name on websites suspected of selling personal information, sends an e-mail if your information is on another tax return filed through H&R Block, and gives basic help navigating red tape. TransUnion also unveiled a new product in January, a mobile app that, among other things, lets users paying $17.95 a month freeze and unfreeze their credit report with a swipe of their finger. Existing products are going strong: The largest niche player, Lifelock, has posted double-digit revenue growth for the last five consecutive years.
While details of all the protection products vary greatly, most charge from $10 to $30 a month. For that, services include credit monitoring, fraud resolution, and increasingly, insurance for out-of-pocket costs or losses tied to ID theft. It's not unusual for plans to offer up to $1 million in coverage. And it's that insurance angle that comes in for the most criticism by consumer experts.
For one thing, the coverage typically kicks in only for losses not covered by one's financial institution or by other policies, such as homeowner's insurance. "It's a hollow promise," says Gary Frank, chief executive of LCG, a national provider of employer-sponsored legal benefits. "They're claiming to provide coverage for things that are already being provided by the consumer financial institutions."
Identity fraud statistics just out from Javelin Research & Strategy put the need for insurance in perspective. There are two primary categories of fraud: existing account fraud, such as when someone gets access to your credit card, and new account fraud, which uses your information to open new accounts. Existing account fraud is by far the most prevalent, accounting for $14 billion of the $16 billion in total fraud losses last year, according to Javelin. The mean consumer cost for this type of fraud, however, was just $63, and many victims will pay nothing.
"That's not to say there aren't going to be people who suffer significant losses," says Al Pascual, director of fraud and security at Javelin. "But even for those outliers, that kind of coverage is merely a peace-of-mind product. Most people are not going to need $1 million in coverage."
For most consumers, a bigger concern is the hassle and time it takes to resolve issues arising from ID theft. New account fraud, though far less common, can be much more costly and time consuming. The mean consumer cost in 2014 was $398, and the mean resolution time was 25 hours.
Here's where companies that offer insurance as part of a plan say there's value. Experian's ProtectMyID plan, for example, provides up to $1,500 a week, for a maximum of five weeks, for lost wages during time spent rectifying records after ID theft. It will also cover up to $2,000 in child or elder care related to recovering one's identity, as well as documentation, travel, and other expenses. There are also provisions for legal and private investigation costs. Lifelock says it has negotiated with insurance companies "to cover payments for lost wages, bail bonds and other ancillary fees related to cases," among other things.
Consumers willing and able to do the legwork themselves have access to free or inexpensive resources for monitoring and resolving credit fraud. But no single product or measure acts as a deadbolt lock against thieves, says Paul Stephens, director of policy and advocacy at the nonprofit Privacy Rights Clearinghouse. Credit monitoring tells you only if new accounts are being opened in your name, so it won't help you if thieves have your credit and debit card numbers and go on a shopping spree.
In that case, the best defense is being vigilant about checking your accounts. Take advantage of free services banks offer, including alerts for wire transfers and certain kinds of transactions. BillGuard's free transaction monitoring app consolidates accounts and makes it easier to spot fraud.
Though less common, the hijacking of your Social Security number can be much more damaging, since thieves can use it to open new accounts, file fraudulent tax returns, and commit medical ID fraud. Some protection plans monitor your Social Security number and alert you if someone applies for credit in your name. Most simply monitor your credit report, though, which means it can be more than a month before you are alerted about a new account, says Pascual.
As an alternative, LCG's Frank recommends placing credit alerts with Equifax, Experian, and TransUnion. It's free, lasts 90 days, and requires creditors to take extra precautions before issuing new credit under your name.
The surest way to keep people from taking out credit in your name? Set up a credit freeze with the agencies. The cost—typically $3 to $15 per credit agency—varies by state and is free if you've been a fraud victim. Keep in mind that you'll need to unfreeze your credit if you plan to apply for a new loan or credit card. That may mean paying an additional fee to thaw your report—which may be a small price to pay if it saves you the hassle of ID theft.
(Corrects the percentage of 2014 Lifelock members added in that year's fourth quarter. Gross new members made up 22 percent of the year's total, not 40 percent.)