Posted by Mike Smith :: February 20, 2008 @ 4:47 am

I read an interesting article on identity theft insurance recently. This product is a side effect of the booming identity theft protection industry, and the article suggests that this insurance isn’t worth it for most people.

The article cites research by Consumer Reports claiming that despite the typically low cost for this insurance, the benefits are usually very limited and typically not worth the money. The problem stems from the fact that you usually aren’t buying protection from identity theft, just coverage to help pay for dealing with recovering from identity theft. Having such insurance doesn’t make you any less likely to be the victim of theft nor does it cover the money that you lose as a victim. So if someone steals your credit card and runs up a $5,000 bill, the insurance may pay for your phone calls, postage, and possibly legal bills to deal with the problem, but it won’t give you your $5,000 back.

With premiums generally ranging from $100-$250, plus the cost of coverage, the actual recovery costs spent by the average victim ($1,500) may quickly be eclipsed. Something that is inexpensive isn’t automatically worth purchasing. Add to this the fact that your credit card may already provide identity theft assistance as a free benefit. If it does, then a marginally worthwhile product like identity theft insurance may really be a waste of your money. Everyone’s situation is different though, so don’t rule out this insurance coverage without considering your likelihood of being a victim and the cost impact that a theft would have on you.

Regular readers of the Lending Club blog know that we cover much more than just personal finance and the P2P loan industry. I recommend you also review our post on Keeping Tabs on Your Credit as a starting point before purchasing identity theft insurance.