Identity Theft Insurance – As a Retiree, Do I Need This?
The American comedian Jay London is quoted as saying, “I don't need to worry about identity theft because no one wants to be me.”1 While it may be true that identity thieves are not interested in stealing your looks or your personality, they are definitely interested in high-net-worth individuals with access to credit.
The credit monitoring service Experian reported that older Americans in the U.S. lose $3 billion a year in financial scams, according to the U.S. Senate's Special Committee on Aging.2 While seniors and retirees may conduct fewer online transactions than other generations, they are frequent targets of identity theft. How can you prevent this or at least manage the risk? Today, we’ll explore identity theft insurance and how that may be a tool worthy of consideration.
What is identity theft?
According to the US Department of Justice, “Identity theft and identity fraud are terms used to refer to all types of crime in which someone wrongfully obtains and uses another person's personal data in some way that involves fraud or deception, typically for economic gain.”3
With access to enough personal identifiable information (PII), an identity thief may be able to transfer balances from existing accounts, or, more commonly, open new credit accounts such as mortgages or other credit lines. This can be extremely difficult to undo and can severely damage a victim’s credit history.
Crooks can attempt to obtain your PII through fraudulent websites, emails, texts or social media posts that are often disguised to look like they come from trusted sources. They can also do it by intercepting your mail or stealing personal documents such as account statements or tax returns.
A common approach when targeting retirees is to telephone from fake financial institutions or government agencies seeking personal, private information. Another tactic is to gain access to email accounts and use that channel as a way to gather more information or to access funds or credit.
A recent Forbes article identified credit card fraud as the top type of identity theft, with over 440,000 cases reported to the FTC.4 But you don’t just need to worry about credit cards. For instance, one client received a cellular phone bill for seven iPads purchased on his account at an out-of-state retail location.
Can the risk of identity theft be insured?
In short – yes. Identity theft insurance can be purchased as a standalone policy or added to an existing homeowner's policy (this may be a good reason to maintain a homeowner's policy in retirement). This type of insurance provides coverage for costs related to recovering your identity and fixing damaged credit related to identity theft. For example, it may cover legal costs, postage fees, costs to freeze credit and financial institution fees, all up to a certain limit.
The premiums for this coverage may be modest, and that is because most policies will not actually cover the loss of the funds stolen. This is important to understand. For example, a policy may cover the costs of identity recovery up to a limit of $15,000. But if you lose $50,000 to fraudulent activity, there is a chance that none of that loss will be covered – only the costs associated with fixing your credit, securing your accounts and restoring your identity.
Identity theft insurance may also provide value in connecting you to experts who can help with restoring your identity. It can be coupled with credit monitoring services that let you know if your private information is compromised due to data breaches, for instance.
Protecting your identity
Because financial losses due to identity theft cannot always be recovered, there may ultimately be more value in preventive behavior. Retirees would be well advised to build strong habits around protecting their identity and encouraging identity thieves to move on to easier targets.
While online, being mindful of phishing attempts and social media scams can drastically reduce the probability of falling victim to identity theft. It is recommended to change passwords to email accounts and financial websites on a regular basis and to keep those passwords well secured.
The same holds true for offline information. Personal documents such as account statements, tax returns or passports should be secured and out of reach of housekeepers, caregivers or other staff. If you are not personally planning to apply for new credit accounts, a freeze on access to your credit history may also be a good preventive step.
Identity theft insurance is one tool in the toolkit to protect assets and maintain strong credit. Premiums tend to be relatively inexpensive when adding this coverage to an existing property and casualty insurance portfolio. That said, coverage limits may be low, and coverage may not extend to assets lost through identity theft. Developing good defensive behaviors, both online and offline, can significantly reduce the chances of falling victim to identity thieves.
ABOUT THE AUTHOR
James Ciprich, CFP®, MBA
Jim is a Partner, Wealth Advisor and Investments Leader in our Morristown, NJ, office. Serving a broad range of clients, he has a particular focus on retirees considering care and housing options. Jim founded legacy firm RegentAtlantic’s Senior Solutions practice specialty. He is often asked to speak at retirement communities and client events and is frequently quoted in the media. Jim also serves on an advisory council to the MIT AgeLab. He holds the CERTIFIED FINANCIAL PLANNER™ certification and has an MBA and a BA in Economics from Rutgers University. He served as an adjunct professor at Fairleigh Dickinson University in the CFP® program. Jim is a past president of his local estate planning council, and he has also served as a trustee for Morristown United Methodist Church. In recent summers, he has volunteered with Appalachia Service Project. In a prior career, Jim worked in the music industry, where he was awarded multiple RIAA-certified gold and platinum albums.
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