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Is Identity Theft Insurance Worth It?

Identity theft can wreck your finances and take months to recover from. ID theft insurance promises to protect you — or at least help you bounce back quicker. But only some ID theft insurance policies are worth the cost, and certain personality types can probably DIY their way around this added expense.

Identity theft is when someone uses your personal information — like your home address, date of birth, credit cards, or bank account details — to take out a bank loan, withdraw money from your bank account, use your credit cards, or open up new credit cards in your name.

The FTC received 1.4 million complaints of identity theft in 2021 alone.

Obviously, identity thieves don’t pay the credit card bills or installments on the loans that they fraudulently take out, so your credit score can take a massive hit if you’re an identity theft victim. This is where identity theft insurance comes in to protect your financial wellbeing. But is it necessary?

If you don’t have the time and/or patience to diligently monitor your credit report and take proper password precautions, it probably is.

Identity Theft Isn’t the Problem; It’s Fixing It

I used to think that if my identity was stolen, all I’d have to do is make a few phone calls, explain that I wasn’t to blame, and voilà: The bills would be forgiven, and my credit score would be restored.

But then a friend of mine had her identity stolen, and I realized how stressful — and expensive — identity theft can be for the innocent party. In her case, someone got her address and Social Security number. They then proceeded to open ten store credit cards in her name. She had no idea this had happened until she started getting bills from places like Toys ‘R’ Us and Guitar Center. In total, the guy spent about $7,000, and tried to pin it on my friend.

She spent about 50 hours on the phone and filling out paperwork in order to straighten the mess out. She also had to take days off of work — which she wasn’t paid for — to make these calls because she doesn’t have any privacy at her workplace. She didn’t want her coworkers to overhear what had happened to her, or, maybe most importantly, hear her Social Security number and other private information. Since she had to share with a gazillion customer service reps, this was more likely to happen.

Although laws protect you from having to pay for any unauthorized charges made in your name, you may be stuck with some fees, ranging from $50 to $500, depending on when you notice the fraud.

While the fraud is investigated, which can take months, victims may suffer dings to their credit score or be unable to obtain credit.

After hearing my friend’s saga, I started noticing ads for identity theft insurance and wondered if I should get it. After all, I have auto, health, life, and home insurance.

So I did some research to find out for myself — and for you — if identity theft insurance is a smart way to spend money.

How Much Does Identity Theft Insurance Cost?

Identity theft insurance can cost anywhere from $6.75 per month for a basic individual plan from Zander to $39.95 per month for the Premier plan from myFICO.

If you own a home, you can probably add identity theft insurance onto your policy for a relatively small increase to your premium. Adding an ID theft insurance policy with my own home insurance company would cost me only $89 when paid in full for the year.

Like any insurance you purchase, it’s essential you read the fine print so you understand the benefits, and any future fees. For example, most policies have a $10,000–$15,000 limit, and some have deductibles of up to $500.

What Do You Get for This Money?

The benefits of identify theft insurance may include:

  • Account and credit monitoring
  • Credit inquiry alerts
  • Assistance if your identity is ever stolen
  • Reimbursement for costs associated with ID theft
  • Monitoring the dark web to see if your private information is available for sale

Are all providers the same?

“They’re all good, but like food and leather, you get what you pay for,” says Robert Siciliano, an identity theft expert and the author of 99 Things You Wish You Knew Before Your Identity was Stolen. “Most offer some form of credit monitoring. Better policies let you know in real time as applications for credit are being processed, not after an account has been opened.”

When you compare some of the best identity theft and credit monitoring services, you’ll note that no two are exactly alike, so choose carefully.

Identity theft insurance does not infallibly protect you from becoming a victim of identity theft, and most policies do not reimburse you for any direct financial losses from the crime. Some, however, do, which would be a definite selling point.

All policies will reimburse you for any costs associated with restoring your innocence, like the costs of making copies, faxing, mailing documents, taking time off from work without pay (lost wages), and hiring an attorney.

Is Identity Theft Insurance Worth It?

I am a big fan of DIY, so I used to think I could monitor my own credit too.

But Robert changed my mind.

“You can check your own credit, but how often do you do it?” he asked. “If you do it once a year and see that credit cards were opened in your name, the damage has already been done. Or you don’t know your identity has been stolen until you start getting bills in the mail.”

What Else Can You Do to Protect Your Identity?

If you can’t afford ID theft insurance, consider freezing your credit.

“No one can open a new line of credit in your name once your credit is frozen,” Robert says. “There’s some paperwork since you have to freeze your credit with each credit bureau individually, but it’s not too bad.”

There’s no negative effect on your credit score, but you will need to unfreeze your credit if you want to apply for a credit card, mortgage, or insurance — basically anything that requires a credit check.

Unfreezing your credit is simple. They give you a username and password so you can unfreeze it whenever you want.

Another tip from Robert? Make sure your online usernames and passwords for each credit card and bank account are different from one another. “If you’re worried you won’t be able to keep them straight, use password manager software like Roboform.”


The cost of an identity theft insurance policy could range from $80 to hundreds of dollars per year. The more expensive the policy, the better the level of coverage, monitoring, and assistance.

In the event that your identity is stolen, identity theft insurance may cover incurred expenses such as phone bills, lost wages, notary and mailing costs, faxing, and even attorney fees. Some policies also include preventative credit monitoring and alerts.

If you’re proactive enough to routinely monitor your credit report and credit card statements — and disciplined enough to give all your financial accounts different passwords — it might not make sense for you to pay the extra expense for ID theft insurance. But if that doesn’t sound like you, a small monthly fee could be worth the peace of mind.

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