ID theft is a becoming a big concern for many of us. But insurance policies which protects against it are a waste of money.
Growing fears of identity fraud have given banks and credit card companies the perfect selling opportunity: ID theft insurance. In fact, this type of protection looks like the policy du jour for seemingly providing peace of mind. But I don't think you should be too keen to jump on this particular bandwagon. Let's find out why.
If you're worried about ID theft, you're certainly not alone. According to Halifax Home Insurance's latest Peace of Mind index, ID theft is a major worry for 55% of people, second only to burglary (64%). It is cited as the main worry for those aged over 65.
And yes, if you become a victim of ID theft, there's no question it could be a very serious problem indeed. Fraudsters can obtain your personal information and identity without your knowledge, and then use it to open bank accounts or apply for credit in your name.
Clearing up the mess after your ID has been stolen and correcting your credit record can be a complex, time-consuming process. So, wouldn't it be sensible to insure against it?
Before I can answer this question, here's a bit more information on how ID theft insurance policies work:
How does identity theft insurance protect you?
In exchange for an annual premium of around £60 to £80, a typical ID theft insurance policy might include:
- Insurance which covers the cost of restoring your identity. Generally you'll get £50,000 to £60,000 worth of cover. This money can be used to pay legal fees, lost salary if you have to take time off work, rejected loan application fees and so on.
- Help from an identity theft 'expert'. This provides you with guidance and support if your identity is stolen.
- Free credit report alerts. This service will notify you of any significant changes in your credit report. You'll normally receive updates by text message or email.
- Free credit reports. Available online at any time.
- Valuable document registration. If important documents such as your passport are lost or stolen, the details will be kept on record for you.
- Passport and driving licence cover. Typically you might get £200 cover to replace lost or stolen documents.
- Protective registration. This isn't offered with all policies, but if you're at risk of identity fraud some companies will place a warning with fraud prevention organisation CIFAS to make sure extra checks are carried out before credit is granted in your name. This is known as protective registration.
This sounds like pretty good stuff, so what's my problem?
- You can get a free credit report yourself directly, from Experian.
- You can make a note of the details of important ID documents yourself quite easily.
- Replacing a passport typically only costs £72, while a replacement driving licence costs £17.50.
- You can buy protection registration yourself for £13.80 a year. More on this below.
Four more reasons why identity theft insurance isn't worth it
Firstly, the cover might look cheap but for the amount of protection on offer, ID theft insurance is actually pretty expensive relative to some other types of insurance.
Secondly - and I think most importantly - this insurance does not protect against any financial loss you might suffer as a result of ID theft. Surely, this is the biggest problem of all, so I fail to see the point of a policy which doesn't cover it.
Don't forget that money you lose as a result of fraudulent activity should be reimbursed by your bank or credit card provider in most cases anyway. Fraud is a crime, and as such fraud protection is high on the agenda of many financial services companies. As long as it cannot be proved that you acted negligently - such as keeping a record of your PIN with your credit card - you should be able to recover your losses from your bank or credit card provider.
Thirdly, figures from CIFAS revealed there were 77,642 cases of identity fraud recorded in 2008.* Although that might sound like a lot, ID theft is still a pretty rare crime. That means the chances of you actually having to claim are reasonably low.
And finally, CIFAS also say the squeeze on credit means fraudsters are now trying to create creditworthy fake identities rather than impersonating real people who may still be rejected for credit by lenders. This has caused the number of real live human victims recorded to fall.
In my opinion, it's far more sensible to simply take preventative measures to protect yourself from ID theft, rather than buying a costly insurance plan. Read Ten ways to avoid becoming a victim of ID fraud for our top tips on how to reduce the risk. There's also a scary (but potentially helpful) quiz you can do on this website - but bear in mind this site sells ID fraud insurance, so don't let the results give you nightmares. Use them to make positive changes to the way you store your data, instead. (Just don't be put off going to restaurants.)
Protective registration
While I'm very dubious about ID theft insurance, protective registration is a different kettle of fish. This is a preventative measure you can take if you know your identity has been stolen, or you feel you're at risk.
Protective registration can be obtained separately through CIFAS at a minimal cost of £13.80 a year without the need to buy an ID theft insurance plan. A warning will be flagged up on your credit file which ensures any CIFAS member (such as a bank or building society) will take extra precautions to make sure an application for credit or to open an account is genuine before it is granted. This could help to nip any problems in the bud.
But bear in mind that, while registration won't affect your credit rating, it does mean your own applications for credit could be delayed because of the additional checks. Find out more here.
*Figures include cases of false identity and identity theft.
You can get a free credit report from Experian here.
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