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As concerns about identity theft have increased over the years, identity theft insurance has become one of the newer kids on that block.
Identity theft happens when a thief steals your personal information, such as your Social Security number, and uses it to open new credit cards or take out loans. Of course, the thieves don't make payments, just rack up bills in your name and ruin your credit.
And unless you check your credit reports regularly, you may not even know for months. You may not know until you apply for a loan and get turned down.
"Identity theft insurance, when purchased as a stand-alone policy, often provides reimbursement to crime victims for the cost of restoring their identity and repairing credit reports," said Loretta Worters, vice president of the Insurance Information Institute.
That doesn't include bills racked up by the thief. It generally covers expenses such as phone bills, lost wages, notary and certified mailing costs, and sometimes attorney fees, Worters said — expenses you rack up while trying to clean up the mess.
"While it can be low cost, you want to check to be sure the insurance policy can do more for you than you could do for yourself if your identity is compromised," said Gerri Walsh, president of FINRA's Investor Education Foundation.
"It may not be necessary if you're monitoring your credit," she said. "Everyone should monitor their credit."
She said everyone can take advantage of the three free annual credit reports available from http://www.transunion.com/">www.transunion.com, http://www.equifax.com">www.equifax.com and http://www.experian.com/">www.experian.com to spot errors, as well as new accounts or other problems that indicate an identity thief is at work.
Consider other options, the experts say:
• One way to help you nip identity theft in the bud is a security freeze on your credit reports. There are companies that will monitor your credit reports, but a security freeze is a less expensive and more effective option that you can do yourself, said Mechel Glass, vice president of community outreach for CredAbility, a nonprofit credit counseling and education association.
A security freeze prevents an identity thief from opening a new account because the potential creditor will not be able to check the credit report. Glass said she has used this option herself.
According to the Consumers Union, most states have enacted laws requiring the credit bureaus to allow consumers to place a security freeze on their accounts, but the credit bureaus also offer it voluntarily in the other states.
In most states, identity theft victims can freeze their credit for free. Others will pay a small fee — generally $10, perhaps less, depending on the state.
The Federal Trade Commission notes that the fee must be paid to each of the three credit reporting bureaus — Equifax, Experian and TransUnion. If you want to lift the freeze temporarily, it's another small fee, generally $5 to $10, again paid to the three credit unions.
Glass advises that if you freeze your account and want to lift the freeze to apply for a loan, allow some time to ensure the freeze is truly lifted before applying.
A credit freeze can keep an identity thief from opening new accounts, but it doesn't prevent a thief from using your existing credit cards or other accounts. And some new services such as telephone, wireless and bank accounts don't require credit checks, according to the FTC.
Service members who are deploying can place an "active duty alert" on their credit reports. When a business sees that, it must verify your identity before giving you new credit. You can call any of the credit reporting bureaus to start this alert, and it is required to notify the other two.
• A number of insurance companies now include identity theft coverage as part of their homeowner's insurance, Worters said. That includes USAA, which offers identity theft restoration services for its members at no extra cost, said Tom Shaw, USAA's vice president of financial crimes management.
The theft doesn't have to involve a USAA product. In one case, Shaw said, a USAA member's identity was used to get medical treatment, resulting in a doctor's bill for $10,000.
Worters suggests talking to your insurance company to find out what coverage you have or get details on what extra coverage you may need. Some companies sell it as an addition to a homeowner's or renter's policy, which can run $25 to $50 a year, she said.