Identity-Theft Insurance

Dear Dr. Per Cap:

How does identity-theft insurance work and is it worth buying?


You Never Know

Dear You Never Know,

As the name implies, identity-theft insurance compensates a person for financial losses stemming from having one’s identity stolen. With the enormous amount of fraud linked to identity theft, I can certainly understand your interest.

My homeowner’s insurance company offers what it calls identity-fraud expense reimbursement, and it works like this:

For $40 a year, a rider is added to my existing policy. Then if my identity is stolen (remember a criminal only needs your name, date of birth, and social security number to commit the crime), I can file a claim that pays a maximum of $25,000 to reimburse for lost wages, child-care expenses, attorney fees, and other costs associated with having to sort out the mess.

The insurance also provides a financial counselor to hold my hand and guide me through the ordeal. One thing to note, though, is that in my case, the insurance is only available through a homeowner’s policy, so renters are out of luck. However, there are companies, like banks, who offer identity-theft insurance without homeowner’s insurance.

Also, the coverage does not protect against emotional trauma caused by the crime. That’s different than cyberbullying insurance, for example, which does compensate for mental anguish and suffering stemming from a cyberbullying incident. Sadly, this is a real risk for adults and children, in the age of social media.

I honestly can’t tell you if identity-theft insurance is worth buying. I’m a little skeptical of any insurance product that sounds gimmicky and this one does.

Also, remember that insurance companies aren’t in the business of losing money. So, for $40 a year, they must think the chances of having to pay a $25,000 claim are slim. That jibes with stats from a recent study that reports the average identity-theft victim loses $1,100. That’s certainly not chump change, but nowhere close to $25,000.

Rather than buy identity-theft insurance, I recommend doubling down on common sense and, as my grandma used to say, “a spoonful of honey is worth a gallon of cough syrup.”

What that means is update your passwords and PIN’s, opt in to two-factor authentication for all your accounts, and really take care when using mobile payment apps like Venmo and Zelle. Throughout the pandemic, there has been a huge uptick in fraudsters hacking digital wallets and peer-to-peer payment platforms.

Sometimes the cheapest solution is the best solution.

Ask Dr. Per Cap is a program funded by First Nations Development Institute with assistance from the FINRA Investor Education Foundation. For more information, visit To send a question to Dr. Per Cap, email