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Ask the Expert: What is identity theft insurance?

Identity theft insurance is a valuable safeguard against the high costs of restoring your identity once you've been victimized by identity theft. Like other insurance policies, identity theft insurance isn't designed to protect you from identity theft itself. Instead, it helps you pay for the actions you need to take when identity theft hits home.

Many identity theft insurance policies offer 100% coverage for out-of-pocket expenses, up to a certain maximum, typically with a small deductible for each identity theft incident. Out-of-pocket expenses covered by an identity theft insurance policy can include:

  • Lost wages as a result of time taken off from work to deal with the fraud;
  • Notary and certified mailing costs for completing and delivering fraud affidavits;
  • Re-application fees for loans that were declined because of erroneous credit information caused by the identity fraud;
  • Phone charges for calling merchants, financial institutions, and law enforcement agencies to discuss your identity fraud case;
  • Attorney fees incurred for handling legal action due to identity fraud, including:
  • Defending suits brought incorrectly by merchants and their collection agencies;
  • Removing criminal or civil charges wrongly entered against you; and
  • Challenging information in a credit report.

Remember, though, that an identity theft insurance policy is quite different from an identity restoration service. Identity restoration services can guide you step-by-step through the process of restoring your name; usually, these services will also handle a lot of the paperwork and legwork for you. Identity theft insurance, however, covers only the out-of-pocket costs you incur while you (and/or your attorney) handle the actual work of restoring your identity.

As noted earlier, an identity theft insurance policy won't protect you against identity theft. If you become a victim of identity theft, though, you can work to reclaim your identity without digging deeper into your financial assets if you're covered by identity theft insurance.

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