Paid Identity Theft Protection Plans – What Are You Really Buying?
Identity theft protection plans can be divided into 6 general categories:
- Fraud Alert
- Credit Freeze
- Reimbursement Insurance
Shopping for Identity theft protection is much like buying home owners insurance. The time to fully understand what is protected, and what isn’t protected is before you make your buying decision. You not only need to know the policy benefits, but also the policy limitations.
Understanding the differences between the 6 general categories will be helpful, so let’s get to the details. Once you understand the details, make sure you compare actual plans to match their offerings with your needs. Once you know what to look for, some of the plans may surprise you.
These are paid services offered by financial institutions or credit companies that do exactly what they say – They monitor your credit activity, and notify you when there is activity in your account.
Credit monitoring is a valuable early warning. The TV advertising myth makes it look like it is all you need and if you have an identity theft problem, just give XYZ Bank a call and they will help you.
What it does not cover – restoration assistance if you are a victim. What they really provide is a resolution service.
A key provision of the Fair and Accurate Credit Transactions Act of 2003 is the consumer’s ability to place a fraud alert on a credit card account or credit bureau listing when an fraudulent account activity is either experienced or suspected.
The alert requires any creditor that is asked to extend credit to contact the consumer by phone and verify that the credit application was not made by an identity thief.
This provision is meant to be used by individual consumers who suspect identity theft. It is a free service, and needs to be renewed every 90 days.
Many startup companies offer paid id theft protection based primarily on fraud alerts. That is what companies like Lifelock, and Identity Truth offer.
There are a couple of caveats when you pay a company to protect you via the fraud alert system. First, fraud alerts are intended for individuals to use to protect themselves.
Second, there are built in vulnerabilities. Creditors are supposed to call you before issuing any new credit. That can be left open to interpretation. Did they make a call, and you weren’t there, so they proceed to issue credit? How do you prove they called you?
Third, fraud alerts only monitor direct credit activity. Less than 30% identity theft is directly related to credit.
Credit Freeze is not the same as fraud alert. A Credit Freeze will prevent access to your credit report, allowing you to control which companies may see your credit report. However, there are certain exemptions to the Credit Freeze allowed by state law that allows companies to view your report even though it is frozen.
Each state has its own rules involving credit freeze. And there is a price attached, and it differs from state to state. There is a charge to place the freeze, and a charge to lift the freeze. Alabama, Missouri, and Michigan are the only states without a credit freeze, but the credit bureau’s voluntary credit freeze is still available in these 3 states.
This is a form of insurance coverage where you must read the fine print. Typical reimbursement policies only reimburse your actual expenses, such as mailing costs, phone costs, any actual, documented expenses in sending out affidavits, or hiring legal help.
What most reimbursement does not cover – the amount of actual financial fraud, and time missed from work.
Also, if you need to bring a creditor to trial to prove you are an ID theft victim, and not responsible for payments owed, you could lose your case if you are outside the 60 day time limit of reporting identity fraud to your credit card company.
What does this really mean for you? Not only may you be liable for paying off the fraudulent amount, but your reimbursement insurance may not cover your attorney fees, because the court verdict says you were at fault.
If you have full identity restoration, reimbursement insurance will not be much of an issue, because the majority of expenses in straightening out your identity will be automatically covered under restoration terms.
Resolution service basically points you in the right direction. They may send you a packet of instructions, with affidavits to fill out, or tell you how to contact the FTC, which can provide an actual 30 page book of instructions and affidavits you can copy.
What it really means to you – if you are a victim of ID theft, you will be in charge of all the phone calls and paperwork, notarized affidavits, correspondence, etc. This is what the FTC means when it talks about up to 600 hours to straighten up the mess, at the cost of $1400 per incident. (An average identity theft incident requires about 116 hours of phone calls, paperwork, etc.
Restoration is a service that assigns an agent to do the majority of the contact and investigative work for you. Restoration will require you sign a limited power of attorney, because you are giving an agent the right to act in your behalf.
Restoration should be the “meat” of any identity theft plan you use. Why? Even though some companies make exaggerated claims that their service will absolutely protect your identity – the truth is – there are always loopholes, and vulnerabilities in systems and your identity can still be stolen, even when you pay for protection.
In the event that the worst happens – do you want an experienced investigative agent working for you, or do you want to do the work yourself?
Now that you understand the categories, check out the plans here.