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Is Identity Theft Insurance Worth It?

With the growing number of identity thefts, given the age of computers and our comfort with electronic commerce, a lot of identity theft insurance companies have been hitting the news lately. Are they really worth it? Is identity theft so prevalent that you would actually need insurance to protect against it? I personally know at least one person who has suffered from identity theft and it cost them quite some money and a lot of their time, easily two or three months of headache and hassle, to clear everything up. Looking at the numbers, is it worth it to pay a company like Lifelock $99 a year for up to $1,000,000 in identity theft insurance? (Many companies and banks offer identity theft insurance but Lifelock appears to have the most bang for your buck from the ones I’ve seen; a bank such as Wells Fargo offers a mere $10,000 in protection for close to $160 a year)

Not entirely sure. According to the FTC, in 2006, the worst state for identity theft was Arizona with 147.8 victims out of every 100,000 persons, or 0.15% chance of being a victim of identity theft. It is also estimated that each victim spends approximately $1,500 and 175 hours to clear their good name. If you estimate that each hour costs $30 (for an annual salary of $60,000), then the total cost is approximately $6,750. Thus, the average annual expected cost of identity theft per person, as measured by probability of being a victim multiplied by cost, is $10.13. Thus, a service like Lifelock is not “worth it” in the strict financial sense.

I poked around the Lifelock website to what they actually offer and they tell you, plain and simple, what they do and the fact that you could do it for yourself for free (I add how in the parenthesis):

  1. Tell each of the credit bureaus to set fraud alerts on your accounts. (You can do this yourself by calling the bureaus and requesting it)
  2. They tell the credit bureaus again every 90 days. (Again, you can do this yourself)
  3. They request your name be removed from junk mail lists. (You can do this free yourself at OptOutPrescreen)
  4. They request free copies of your credit reports. (You can do this free yourself at AnnualCreditReport)
  5. If your identity is stolen, they will spend up to $1,000,000 to help you get it back. This is the only thing you can’t do yourself… well you can self-insure but you won’t have $1M backing you up.

The most interesting thing about the site is the fact that the CEO, Todd Davis, plasters his social security number, 457-55-5462, all over the site. Assuming that is his social security number, that’s a pretty bold thing to be doing and a strong “money where your mouth is” type of statement that I can admire. Of course, that alone isn’t a reason to try the service, doing a calculation like I did earlier, which showed this particular $99/yr service is not worth it, is how you should be making your decision. That being said, putting your social on the web like that is certainly a great marketing ploy.

(Another company that offers a very similar service is TrustedID but it’s $12.95 a month, making it a less attractive offer; but I mention it in case you wanted to get a better feel for the industry. They lack the catchy marketing ploy of plastering their CEO’s social security number on their site.)

Verdict: Identity theft insurance isn’t worth it when you look at the numbers but sometimes it’s about peace of mind. As for me, I won’t be getting it anytime soon unless the probability of identity theft goes up significantly.


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