Insured Identity

CHARLOTTE, N.C. — You’ve heard the horror stories about identity theft victims spending many frustrating, costly hours trying to reclaim their financial lives.

For insurers, those nightmares are a marketing opportunity.

Increasingly, companies are offering insurance that reimburses victims for the costs of cleaning up after an identity thief. Coverage, usually part of homeowner or renter policies, includes $15,000 to $25,000 for expenses ranging from attorney fees and lost wages to postage, phone charges and notarizing documents.

Actual financial losses, such as money siphoned from an account, are typically not covered but also are unlikely.

Big names, such as Allstate and Nationwide, joined the roster within the past year or so.

Annual charges are $25 to $45 among six insurers contacted, including some of the largest. Chubb has a $500 deductible compared with $250 or zero from others. In 47 states, Chubb includes coverage at no charge.

Most insurers also offer what are called restoration services — help with what can be an overwhelming to-do list of calls, reports and bureaucratic hassling.

So, is the coverage worth it?

Consumer advocates are divided.

Typically, you buy insurance to protect from major financial hits such as illness, death, a car wreck or house fire. Identity theft is rampant, but for many victims, there is little or no cost. But you could be among those who must spend a fortune proving yourself innocent of crimes and cleaning up your credit.

“The out-of-pocket expenses can vary, and how extensive the problem can become varies,” said Jay Foley, executive director of the Identity Theft Resource Center, a San Diego nonprofit organization. “If you want the additional security of that insurance, go for it.”

Don’t go for a deductible of more than $250, he advised.

But Paul Richard, executive director of the institute of Consumer Financial Education, a San Diego-based nonprofit, said, “Don’t waste your money.”

Richard just doesn’t see the policies’ payoff. He urges consumers to focus instead on tasks such as having a list of all your credit cards and other financial accounts and contact information so that if you are a victim, you can quickly make the right calls.

More than two-thirds of victims have no out-of-pocket costs, based on a January report by Javelin Strategy & Research for the Council of Better Business Bureaus. For those who incurred costs, the average was $422.

Foley’s center found a much higher average cost of $1,300 per person, based on interviews with victims. That’s without lost wages, he said.

“If we added lost wages, that number would go right through the darn roof,” Foley said.

Reimbursement for time off and attorney fees could make the coverage very valuable in some cases, he said.

Lost wages top the list of claims, said Joe Lester, identity theft product manager for Travelers.

As with any contract, read carefully.

Liberty Mutual and Travelers, for example, require pre-approval for attorney fees. That’s to ensure that people understand exactly what they’re covered for, Lester said. “It has to be specifically items related to identity theft.”

Make sure you’re not buying something you can get free, such as credit reports, cautioned Sheila Adkins, spokeswoman for the Council of Better Business Bureaus in Arlington, Va.

“We’ve received a lot of inquiries recently about companies offering identity theft insurance policies,” she said.