Is Identity Theft Protection Worth It? Here’s What to Know

In the criminal world, identity theft is a big business.? According to the most recent figures from the FTC, there were nearly 1.4 million cases reported in 2020 in the United States alone, about a third of which resulted in financial losses, and there were likely many more that were not reported.? When you add in the numbers from other wealthy nations, including Canada, the UK, Australia and the members of the European Union, well… there’s plenty of incentive for identity thieves to keep doing what they’re doing.?

That means there’s also plenty of incentive for consumers to protect themselves.? A number of services are available to meet that demand, including various identity theft protection products and even identity theft insurance.? But is identity theft protection worth it for most consumers?? There’s no hard and fast answer — it’s a call you’ll have to make for yourself — but we can help by breaking down the pros and cons for you.?

A Quick Review of Identity Theft

Before we get into identity theft protection, let’s take a moment to review what identity theft actually is.? In brief, it’s when someone who isn’t you uses a portion of your personally identifying information to fraudulently act in your name.?

That information might include:?

• Your credit card numbers
• Your banking or investment account information
• Your Social Security number
• Details of your personal life (your kids’ school, your full date of birth, your first pet’s name) that are commonly used as security questions or could be used to impersonate you

Once they’ve got it, identity thieves can use this information in a number of problematic ways, such as:?

• Charging purchases to your accounts
• Opening new credit accounts in your name
• Getting a new card issued on your existing account
• Fraudulently claiming your tax refund or your dependents
• Using your identity to work illegally or to avoid arrest
• Getting a lease or utilities they wouldn’t qualify for under their own names
• Emptying your accounts
• Using your health coverage

Identity Theft Can Really Mess You Up

Any combination of these things can make a hash of your life and credit rating, and sorting them out can be messy.? It can often take months for the repercussions of a damaging identity theft to be sorted out.? Some of your losses — fraudulent charges on a credit card, for example — can be easy to recover, but what about the time and money you invest (and the hardships you encounter) while you’re doing that??

In its 2021 report on the aftermath of identity theft, the Identity Theft Resource Center found that 40% of last year’s victims were unable to meet their bills as a result of the identity theft.? Many more had to take on additional debt to make ends meet (not easy when your identity has been compromised), or were unable to secure housing until the theft was resolved.? Chillingly, some 8% of respondents also reported having suicidal thoughts in the aftermath of their identity theft experience.?

Clearly, any protection you can get — from identity theft itself or from its aftermath — has definite value.?

How Identity Theft Protection Works

So having established that identity theft is a Very Bad Thing, we’re left with the question of whether to get some protection.? First, to be clear, the term “identity protection” is a bit of a misnomer: these services won’t (and can’t) prevent your identity from being stolen.? What they can offer is some combination of these services:?

• Credit monitoring: The service tracks your credit score, some by checking it at specified intervals and some by reporting any changes in something approaching real-time.? The best services track all three of the major reporting agencies; lower-cost options may track just one.?
• Identity theft monitoring: The service watches for suspicious activity involving your Social Security number, changes of address, your information appearing in public records in places where it shouldn’t and similar forms of vigilance. The very best identity theft protection services, like Spokeo Protect, monitor the black markets of the so-called dark web, where identity thieves buy and sell personal information.?
• Recovery assistance: Some services will help walk you through the process of undoing all of the havoc that’s been caused by the identity theft and any resulting fraud.?
• Identity protection insurance: You may also have the option of buying identity theft protection and identity theft insurance as a package deal, but we’ll discuss the insurance part separately.?

Is Identity Theft Protection Worth It??

Deciding whether identity theft protection is worth it (for you) is purely a value judgment.? To decide, look at the pros and cons, the price of the service(s) you’re considering and the actual services offered by that particular vendor.?

The Cons:?

• Many of the services offered, like monitoring your bank accounts and credit score, are things you can do for yourself for free.?
• Some providers (your bank and your credit card company) may offer similar services at little or no charge.?
• Whether you pay monthly or by the year, it’s yet another expense you’d probably rather do without.
• Depending on the services offered in a given package, it might not actually meet your needs.??

The Pros:?

• It frees up your time.? Having someone else keep an eye on your accounts and identity means you don’t have to, and how much is your time worth?? Also, you’ll be getting centralized alerts from one source instead of from a handful of different providers.
• The cost of the service may be less than doing the same thing on a DIY basis.? You’re entitled to one free credit report yearly from each agency, for example, but that’s just three per year.? If you want more, you’ll have to pay.?
• You may not have the skills to do it yourself.? Dark web monitoring, for example, requires some seriously specialized skills.? Wandering into the hackers’ and criminals’ playground as a layperson is rather like deciding to spend your evenings at a gang hangout asking questions: a bad outcome is likelier than a good one.?
• It improves the chances that you’ll be able to minimize the damage.? The longer identity thieves operate undetected, the deeper the hole they can dig for you.? Getting an alert as soon as your information is sold on the dark web or compromised in a data breach might help you get ahead of the scammers.?

Whether it’s worth it is a question of your budget and the extent to which you’re willing to invest your time instead of money.? Many of the leading services cost $10/month or less, which is pretty modest (probably a lot less than you spend on coffee) for something that can save you a lot of money and frustration.? As always, caveat emptor: be sure you understand what you’re paying for, and what’s not included, before you commit.??

How Identity Theft Insurance Works

Like identity theft protection, identity theft insurance comes with a big asterisk: it’s not going to make good on your total losses.? That’s because you already have protections against a lot of them.? Your bank and your credit card companies, for example, will reimburse you for most fraud-related losses, and some losses might even be covered by your homeowner’s or renter’s insurance.?

Identity theft insurance is intended as a backstop to those other protections, a way of recovering some of the losses that might otherwise fall through the cracks.? These might include things like the costs of assembling, notarizing and mailing or couriering all of the documentation you’ll handle during the recovery stage of an identity theft incident.? There will be a lot of those — remember, you’re interacting with credit-reporting agencies, government agencies, law enforcement, your banks and creditors and potentially collections agencies as well — so that sometimes becomes a nontrivial cost.?

Unless your scammer is caught and you have the opportunity to bring a civil suit (don’t hold your breath), it’s probably also your only opportunity to be compensated for things like lost wages or legal fees.?

Is Identity Theft Insurance Worth It??

One again, let’s look at the pros and cons:?

The Cons:

• Yup, it’s another cost, and — as with most other forms of insurance — it’s one that you ideally will never use, and therefore never get back (we can hope, right?).
• There’s a deductible.? Find out what the dollar amounts are for the deductible and what the corresponding price points are for the coverage, and see if there’s an option that fits your budget and comfort level.?
• The coverage varies between vendors.? You’ll need to look closely at what is or isn’t covered, and what kind of documentation you’ll need to provide to support your claim.?

The Pros:?

• As with any form of insurance, you’re trading a known and (presumably) manageable cost to guard against unknown and unpredictable costs.? It’s a security blanket, and a bit of sorely needed peace of mind.
• If you need it, the coverage can shield you from some of the transient but miserable financial hardships that sometimes result from identity theft (remember those depressing stats from the Identity Theft Resource Center?).?

As with identity protection services, you’ll need to compare the cost of having it to the cost of not having it, and decide whether you’re comfortable with that math.? The trade-off is one of money versus peace of mind, and the relative worth of those two commodities comes down to your budget.?

Paid Protection Is Only Part of the Picture

It’s important to remember that neither of these products actually prevents identity theft; they just help minimize the costs and repercussions for victims.? Even if you’ve opted for one or both, a few proactive steps (or habits) can round out your security by reducing the likelihood that you become a victim in the first place.?

One way to shorten the odds of your information going astray is simply to reduce how much of it is out there.? Consider scaling back your social media presence, auditing your followers or making your accounts private.? Use your mobile OS’s security features to limit which apps can access your location, contacts and other information (and remove the default metadata from your photos before you post them).?

Be security conscious, inside your home and out.? You don’t have to be a networking pro to change the default password on your router, for example.? When you’re using your devices away from home, don’t log into sensitive sites (banks, credit card accounts, government agencies) from public networks.? On the subject of passwords, make sure yours are strong, and don’t reuse them from site to site (get a password management app, it really helps).?

It’s probably impossible to completely remove the risk of identity theft, but this combination of proactive prevention and help with the cleanup can keep it from becoming a life-changing trauma.