Cybersecurity Awareness Month is a great time to think about how much of your personal information exists online and what could happen if someone gets their hands on it.

Identity theft isn’t limited to someone stealing your credit card and making a few purchases. A criminal who obtains enough of your personal information may attempt to open a new credit account, take over an existing account, apply for a loan, use your information for medical services, or impersonate you when dealing with financial institutions.

And the problem may not end when the fraudulent transaction is stopped. The real headache can be the recovery process: contacting creditors, disputing fraudulent accounts, reviewing credit reports, replacing identification, documenting what happened and spending hours communicating with different organizations.

That’s where an often-overlooked piece of personal insurance can become valuable: identity theft or identity fraud coverage.

How Are Identity Thieves Getting Personal Information?

Identity theft can begin in several ways, and you don’t necessarily have to make a mistake for your information to be exposed.

Data breaches are one example. Your information may be stored by a retailer, financial institution, healthcare provider or other organization. If that organization’s systems are compromised, information connected to your account could potentially be exposed.

Criminals also use phishing emails, fake websites, compromised passwords, social engineering, stolen mail and other methods to obtain personal information.

A criminal may start with your name and email address and then combine information gathered from other sources. Public social-media profiles can provide additional details about where you work, where you live, family members, pets, travel plans or other information that can make a scam more convincing.

What Does Identity Theft Actually Look Like?

Consider a few situations that can happen to an ordinary household.

Scenario 1: A New Credit Card Appears on Your Credit Report

You check your credit report and discover a credit card you never opened. Someone has obtained enough of your personal information to apply for credit in your name. Now you may have to contact the creditor, provide documentation that the account isn’t yours, review your credit reports for additional fraudulent accounts, and follow up to make sure the fraudulent account is removed.

Scenario 2: Someone Applies for a Loan in Your Name

Imagine applying for a car loan or mortgage and being surprised when the lender tells you that your credit history shows a recent loan application you don’t recognize. A criminal may have used your Social Security number, date of birth and other personal information to apply for a loan under your name. Even if the loan is ultimately denied or the lender determines it was fraudulent, you may have to prove that you weren’t responsible for the application, contact the lender, dispute information with the credit bureaus and monitor your credit for additional activity. This can become particularly stressful when you’re trying to make a legitimate major purchase.

Scenario 3: Someone Takes Over an Existing Account

You receive an alert that the email address or password associated with one of your financial accounts has changed. You try to log in and can’t. Someone has taken over the account and may be attempting unauthorized transactions or using the compromised account to access additional information. Even if your financial institution ultimately reverses fraudulent transactions, you may still spend hours securing the account, changing credentials, documenting what happened and checking whether other accounts have been affected.

Scenario 4: Your Identity Is Used for Medical Services

Identity theft isn’t always about credit cards and bank accounts. Someone may use your personal information or medical insurance information to obtain medical services or submit claims. The problem may not become apparent until you receive an unfamiliar medical bill or discover information in your records that doesn’t belong to you. Resolving medical identity theft can require working with healthcare providers and insurance companies to determine what happened and correct inaccurate information.

Where Does Personal Insurance Come In?

This is where an identity theft endorsement on a homeowners, renters or other personal insurance policy may help. An endorsement is an addition to an insurance policy that provides coverage for a specific risk or group of risks.

Identity theft endorsements vary significantly between insurance companies. Some focus primarily on expenses associated with restoring your identity, while others combine identity theft protection with broader personal cyber coverage.

Depending on the policy, coverage may help with eligible expenses such as:

• Attorney fees
• Lost wages
• Costs to replace government-issued identification
• Certain mailing, copying or notarization expenses
• Certain travel expenses
• Identity restoration services
• Assistance from a consumer fraud specialist

Your Bank May Recover the Money. Insurance May Help with the Cleanup.

This distinction is important, people sometimes assume identity theft insurance exists primarily to reimburse money that a criminal stole. That’s generally not how identity theft insurance works.

The FTC explains that identity theft insurance may cover certain out-of-pocket expenses associated with recovering your identity, such as copying documents, postage, notarization, lost wages and legal fees. It also cautions that identity theft insurance generally does not reimburse money stolen directly by scammers or other financial losses from the theft.

Source: Federal Trade Commission, “What To Know About Identity Theft”
https://consumer.ftc.gov/articles/what-know-about-identity-theft

Think about the difference. A criminal opens a $7,000 credit card in your name. The $7,000 balance is not necessarily an insurance claim against your homeowners or renters policy. The credit card company and applicable consumer protections may determine how the fraudulent debt is handled.

The financial institution may address the fraudulent transaction. Identity theft coverage may help address some of the costs associated with restoring your identity. The exact coverage depends on the policy.

Cybersecurity Awareness Month Is a Good Time to Check Your Policy

There is a tendency to think cybersecurity is entirely about prevention, but having access to identity restoration assistance and coverage for certain eligible recovery expenses can be another layer of protection.

Consider asking your insurance agent to review your identity theft coverage. You may discover that you already have protection you didn’t know about. Or you may find that adding an endorsement is an affordable way to add another layer of protection to your household’s risk-management plan.

Because cybersecurity isn’t only about keeping criminals out. It’s also about knowing what resources you have if they get in.

Not a Deposit | Not FDIC Insured | May Lose Value

Sources

Federal Trade Commission. “What To Know About Identity Theft.”
https://consumer.ftc.gov/articles/what-know-about-identity-theft