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ID theft insurance, a waste--April Fools?

While contemplating an identity theft parody appropriate for an April Fools’ Day article, we noticed an article and a video that were published yesterday that discredit identity theft insurance. Reading and watching these media with an expert’s eye was sufficiently paradoxical to bring you this commentary and warning about the other type of “lemming.”

There are many others types of identity theft than bank and credit card fraud where consumers need to turn to experts in order to get help.
Ellen Meany/Copyright 2009 Isthmus Publishing Co., Inc. (used with permission)

We recently published, “Is buying identity theft protection like following lemmings?” where we critiqued celebrity endorsements of identity protection services. Non-expert radio talk show hosts endorse a few different identity protection services in spite of having about the same knowledge of identity theft as the average consumer. Identity protection services are typically concoctions of several separate and different aids that may synergistically help consumers decrease their risk of identity theft. Celebrities lack the expertise to make legitimate recommendation, and regardless, consumers follow the celebrities.

There is another group of lemming leaders, best characterized as consumer advocates or consumer protectionists, who believe that all identity protection is either a scam or a waste of money. These people, most often novices, erroneously assume that all consumers can do everything an identity protection service can do for free. Identity theft expert, Adam Levin has responded recently to such misleading claims made by a credible consumer protection icon.

The article and video that appeared yesterday, specifically targets identity theft insurance, meaning a plan that reimburses victims of identity theft for certain expenses associated with restoring one’s own identity. The media is correct in stating that such expenses are typically small and cover such items as postage, photocopying, and vehicle mileage whereas some may even cover lost work time although some exclude the lost work time of the self-employed.

One valuable tip, provided by the reporter, is to check your homeowner’s or renter’s insurance policy before purchasing identity theft insurance because it is becoming common for insurers to include identity theft coverages. The fact that such coverage may be included in these policies at no additional cost reflects the reality that claims on the incidental expenses are low, and likely often zero because few insureds would be able to produce the receipts for postage or photocopies and written records for vehicle mileage, which would be required to make an insurance claim.

The main focus of the article is on existing credit card and bank account fraud, which made up 7.5% of all identity theft in 2013 as reported recently by the Federal Trade Commission. (We have long argued that this type of fraud is not true identity theft, and we also ask, “what about the remaining 92.5% of reported identity theft that does not involve existing financial accounts?”). The article states that this type of financial fraud is covered by zero liability policies of banks and financial institutions, therefore it is a non-issue to consumers because the financial institutions protect consumers. This assertion is based on one report on which the article relies heavily, whose focus is on bank and credit card fraud.

While it is often the case that consumers have little liability for existing credit or bank account fraud, it is not always the case. Again, we’re talking about 7.5% of all identity theft in 2013, if we really want to count simple credit card and bank fraud as identity theft. In addition, business owners must know that their business accounts are excluded from Federal regulations that protect consumer accounts and most financial institution zero liability policies.

The article opens with this illogic: auto and homeowners insurance cover repairs when you wreck your car or set your house on fire (arson?), but identity theft protection services cannot prevent identity theft, and the banks will replenish money stolen from your bank account. Such nonsense illustrates how non experts can mislead consumers.

A correctly stated analogy is: auto insurance, homeowners insurance and identity protection plans cannot prevent accidents, fires, or identity theft, respectively; however, all three can cover the cost to make you whole again.

While we tend to agree with the reporter who wrote the article and who is interviewed in the video, that traditional identity theft insurance is of little value, the reporter either intentionally or unintentionally over reaches by apparently generalizing that all identity protection services (not just insurance) are a waste of money. The reporter even makes the flippant analogy that having a professional help you resolve an identity theft crime is like hiring a wedding planner for one’s wedding, a remark we’ll leave for the professional wedding planners to critique.

Different identity protection services provide varying levels of support to victims from virtually no assistance to complete restoration and repair of one’s identity by highly experienced and credentialed licensed investigators. Is restoring one’s identity (other than those 7.5% of cases of simple credit or bank fraud) something that you can do under the emotional weight of being a victim of identity theft?

Recently, we conducted a continuing education class for identity protection consultants. One of our guest speakers was an attorney with a major law firm that assists clients with identity theft cases. He made this statement, “Before identity protection plans that offered full restoration of a victim’s identity, we would give clients, who were emotionally distraught over being an identity theft victim, a complex homework assignment to resolve it him or herself.”

Resolving victimization requires time and know-how, and in addition, restoration may require the expertise of an investigator or an attorney to address seemingly trivial issues such as getting ones credit history corrected—a next to impossible task for consumers to accomplish on their own. See the video associated with this article where only having a comprehensive identity protection service could help the victim.

Most consumers cannot do everything themselves, most don’t know where to begin, most don’t have the time or know how to resolving it, unlike Sandy Bigelow Patterson in the movie Identity Thief. And if they did, could they do everything or want to do everything necessary for a period of months or years while under the duress of being a victim?

The article, critiqued here, is fraught with misconceptions, errors, and misleading statements based on the author’s apparent narrow and limited knowledge of identity theft. For example, LifeLock is referred to as a credit monitoring company, which it is not. In fact, when Lifelock launched several years ago it’s advertising ridiculed credit monitoring. The article says that according to experts that credit monitoring cannot stop a scammer from opening an account in your name—no expert would make that false statement. The professor cited in the article says while identity theft is upsetting, it is not expensive. Mr. Professor, tell that to the many victims we have met and the thousands of documented victims whose stories find their way into the media every year. Another so-called expert is quoted in the article as saying, “I really don’t know, and I am not sure. . .” in regard to the value that identity protection services analytics bring to consumers. Ask an expert, and they will give you a definitive answer.

Happy April Fools’ Day—let’s connect so you can stay informed.

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