Identity theft insurance: What is it and is it worth it?

Identity theft is the number one crime in the U.S. based on an analysis from LifeLock, which estimates the total number of victims, not just how many cases were reported. The sheer volume of sensitive data out there today that’s at risk of being compromised through data breaches, scams, or theft means your identity is never entirely safe.

Although there’s no way to guarantee protection against your identity being stolen in the first place, identity theft insurance gives you a financial safety net against the potential consequences of identity theft.

What is identity theft insurance? 

Identity theft insurance is a type of financial coverage that kicks in if your identity is stolen, providing financial protection through reimbursement. It doesn’t do anything to prevent identity theft, but it mitigates the financial consequences by helping you recover money stolen by an identity thief, spent on legal support, or lost to necessary expenses in the aftermath.

These insurance policies, or identity theft reimbursement coverage plans, as they’re often described, are usually included as part of a broader identity theft protection service. The specifics of coverage depend on the provider and plan that you choose, but identity theft insurance can stretch up to $3 million in financial protection per covered adult.

How does identity theft insurance work?

Identity theft insurance works similarly to any other type of insurance, offering coverage to protect against the financial consequences of identity theft. To be eligible to claim, you need an active policy at the time that identity theft occurs. Then, after discovering the incident, you can contact your identity theft protection provider and start the recovery process, during which they will help you set up a claim for any unrecoverable losses or expenses.

However, bear in mind that just like other insurance policies, identity theft insurance may not cover all costs and reimbursement may not be immediate. How and what you can claim will all depend on the type of identity theft you experienced, what happens during the recovery process, and your policy’s terms and conditions.

Also, depending on your policy, you might need to pay certain expenses out of pocket to begin with, but as long as those expenses are covered, your insurance provider should reimburse you up to the limits outlined in your plan.

What does identity theft insurance cover?

Identity theft insurance policies typically cover the main losses and expenses you’re likely to suffer if your identity is stolen, including fees for replacing documents, lost income or travel expenses when you have to travel to recover your identity, and money transferred out of compromised accounts.

As an example of what identity theft insurance tends to cover, here’s a list of some of the main loss and expense categories LifeLock members can claim for following identity theft:

• Unauthorized transfers: Direct financial losses caused by fraudsters transferring money out of accounts that they got access to by stealing your identity.
• Stolen wallet contents: The value of the contents of your stolen wallet, including cash, provided the wallet was stolen as part of the identity theft incident and reported to the police.
• Document replacement: Fees for notarizing affidavits, getting police reports, posting proof of identity, and other tasks, provided they’re incurred as part of your recovery.
• Remediation services: Costs associated with receiving the services of investigators and other third-party experts, if necessary during your recovery process.
• Legal costs: Fees for lawyers and other legal experts if required to represent you, challenge credit reports, or defend against wrongful criminal charges.
• Lost income and travel expenses: Unpaid wages and mileage costs associated with identity theft recovery related tasks, like traveling to visit a government office.

Reimbursement criteria, even for covered loss and expense categories, are often strictly defined and the exact details of your situation will affect what you can claim back.

For instance, most identity theft insurance policies only reimburse you for losses due to unauthorized transfers after confirming that your bank or credit card provider won’t. In other words, the insurance is a last resort — your identity theft protection provider will first try to help you recover the money you’ve lost through other means.

Because the devil is in the details, make sure to read the fine print of your insurance coverage very thoroughly before buying. For reference, here’s the full policy document for LifeLock’s identity theft reimbursement coverage included in all identity theft protection plans.

Is identity theft insurance worth it? Three questions to ask yourself

Deciding whether identity theft insurance is worth it for you involves considering three main factors — your existing level of protection, how well you can handle recovery by yourself, and how at risk your identity is. Of course, you’ll then want to weigh that assessment against the cost of an identity theft insurance policy or, more likely, a full identity theft protection plan.

Start by asking yourself these questions:

1. Do I have existing protection through other channels?

You may already have some form of identity theft protection insurance through your credit card company, employee benefits, or your home or renters insurance policy. In 2020, the Insurance Information Institute (III) reported that “Few U.S. homeowners and renters realize their existing insurance policies offer them limited identity (ID) theft coverage.”

If you realize you do already have some form of identity theft insurance or reimbursement coverage, make sure to look into the details of your plan. The coverage might be very limited, falling short of meeting your specific needs and leaving you exposed to the risk of being responsible for some of the financial consequences of identity theft.

2. Can I take care of recovery myself?

Resolving identity theft problems and recovering your financial identity can take time and cause stress. But the identity theft protection plans that tend to include insurance coverage also offer recovery support, providing valuable expert restoration assistance.

So, the second step in deciding whether insurance is worth it for you is to ask yourself how capable (and, especially, how willing) you are to navigate the necessary bureaucratic processes, read through small print, and spend time on the phone disputing errors or replacing documents if your identity is stolen.

Remember that identity theft protection plans include lots of additional capabilities that can help you protect against the risk of identity theft or spot the warning signs when it happens, many of which are hard to do yourself. That includes automatic data broker removal, credit monitoring, and financial account alerts.

3. What’s my risk level?

The third piece of the puzzle is determining how at risk your identity is. Identity theft is one of the most common crimes in the U.S., with 1.1 million cases reported to the FTC in 2024 and many more cases likely to have gone unreported. But several factors, including your age, your online behavior, your awareness of threats, and what steps you take to protect your personal information can affect your individual risk of becoming an identity theft victim.

If you’re confident that you use strong passwords and two-factor authentication on all of your accounts, safeguard your personally identifiable information against potential scammers, and know where all of your important documents are, for example, your risk might be lower.

But if you’re in one of the most at-risk demographics for becoming a victim of identity theft, regularly share your data and payment details with websites that aren’t entirely trustworthy, and have multiple different cards or accounts that are hard to stay on top of, you may be more vulnerable.

Since credit card fraud is regularly the most reported type of identity theft, with almost 450,000 cases reported to the FTC in 2024, determining your risk level is a critical part of protecting your finances. You may be more likely to think identity theft protection is worth it when you realize just how exposed your finances are in the event of a data breach or successful phishing scam.

How to get identity theft insurance

There are three main ways to get identity theft insurance: by subscribing to an identity theft protection service, getting a standalone insurance policy, or getting coverage as a benefit from either a financial account provider or an employer.

Here’s an explanation of the pros and cons of each option:

Identity theft protection services

Identity theft protection services like LifeLock include identity theft insurance or reimbursement coverage alongside a range of other features that can help you protect your identity proactively, monitor for warning signs of identity theft, and recover if your identity is stolen. These features typically include:

• Dark web monitoring that alerts you if traces of your personal information are found being sold or traded by criminals on the dark web, helping you spot vulnerabilities after a data breach.
• Credit monitoring that makes it much easier to track your credit reports and detect errors that might signal credit fraud or identity theft when they appear.
• Alerts that notify you when your personal data is used in applications and financial account alerts that warn you about potentially suspicious transactions.
• Identity restoration services, connecting you with an identity theft expert who will guide you through the recovery process step by step if you fall victim.

An identity theft protection plan might be best for you if you want to be proactive about defending your identity and could benefit from expert support if the worst was to happen.

Insurance providers

Many insurance providers offer identity theft insurance, either as standalone policies or as add-ons to other policies. If you already have another insurance policy, such as home, renters, or car insurance, check whether you already have some kind of identity theft insurance included. If not, look into whether you can get it added to an existing policy, but make sure to compare the benefits with coverage available through an identity theft protection service first to ensure you’re getting all the features you need.

Account or employee benefits

Some credit card or bank account providers offer identity theft insurance or protection services for free as an account benefit, or as a paid add-on. Check with your financial provider to find out what they offer and what may already be included with your current accounts. Similarly, inquire with your employer about whether identity theft insurance is included as a benefit.

How much does identity theft insurance cost?

The cost of identity theft insurance varies massively depending on which policy you choose, how much you’re covered for in any given policy, and whether your plan comes with additional identity theft protection features. However, you should generally expect to pay between $5 and $35 per month, with standalone insurance policies typically on the lower end of that range and full identity theft protection packages with extra features costing more.

However, remember that a good price doesn’t necessarily represent good value. If your chosen policy doesn’t cover you for all of the potential financial consequences you’re worried about facing if your identity is stolen, it probably isn’t the right choice. And, if you’re after proactive protection, a standalone insurance policy might not make as much sense as getting an identity theft protection service.

Choose the best option for your situation

If you ever become a victim of identity theft, as millions of people in the U.S. likely do every year based on the number of reports made to the FTC, you’ll probably be glad to have identity theft insurance already in place. A small monthly cost can help protect you from the worst financial consequences, increasing the likelihood that you walk away from the incident without being out of pocket.

Plus, as a LifeLock member, not only will you get up to $3 million in identity theft reimbursement coverage to cover things like legal costs, financial losses, and personal expenses after identity theft, you’ll also get up to three-bureau credit monitoring, financial account alerts, stolen wallet protection, and expert help recovering from identity theft if you become a victim.

FAQs

What doesn’t identity theft insurance cover?

Identity theft insurance generally won’t cover you for any costs or losses that would otherwise be reimbursed by another party. For example, if money is stolen from your bank account after an identity thief gets access, you’d most likely be able to claim that money back from the bank rather than your insurer.

Can you get free identity theft protection?

You may have access to free identity theft protection through your employer, bank, credit union, home insurance, or an organization you belong to, like AAA. You can also order free credit reports to help you monitor for fraudulent financial activity in your name.

Who is liable if your identity is stolen?

Victims have limited liability for debts resulting from identity theft, including no liability for debts from fraudulent accounts opened in your name and liability caps of $50–$500 for other types of fraud, like unauthorized credit card charges or use of a stolen debit card, depending on when you report the fraud. Most states also have laws limiting liability for fraudulent checks when reported promptly. For full details, check out the federal regulations and look up your state laws.