Identity Fraud Reimbursement Program: An Overview

An Identity Fraud Reimbursement Program is insurance that protects their policyholders from losses associated with identity theft. Sometimes referred to as identity theft insurance, identity fraud reimbursement programs are offered both as stand-alone products and as add-ons to broader insurance policies such as homeowners insurance or car insurance.

Key Takeaways

  • Identity Fraud Reimbursement Programs are insurance policies or clauses of policies that protect consumers against costs related to identity theft.
  • The policies may cover direct costs as well as related costs of recovering from the incident.
  • Some policies may automatically include coverage for some incidents of identity theft. Check your policy.

How Identity Fraud Reimbursement Programs Work

The reimbursements available with fraud reimbursement policies can cover a variety of the direct and indirect costs related to identity theft. Direct costs include reimbursement for money stolen from an account. Indirect costs may include legal fees, lost wages, notary fees, postage, and other expenses required to recover from the theft.

In addition to reimbursement, identity theft protection programs often provide information and services geared toward preventing identity theft and restoring a credit score that has been compromised.

Coverage Options

Depending on the policy, coverage can range from a few thousand dollars into the millions. The amount of coverage will depend on individual circumstances.

Some homeowner's insurance policies automatically include some level of protection against identity theft that arises from the theft of the policyholder's credit cards or financial documents.

Brand Names

Major insurers involved in selling identity theft insurance policies include State Farm Mutual Automobile Insurance, Nationwide Mutual Group, and Travelers Companies Inc. Collectively, these three companies provide about one-third of the total consumer coverage.

14.4 million

The number of Americans who were victims of identity theft in 2018.

In addition, there are companies that specialize in insuring consumers against identity theft, such as Identity Guard, Identity Defense, and LifeLock.

Some companies that made their names dealing with confidential information also are getting into the related area of identity theft protection. Examples include Intuit, owner of the tax preparation software program TurboTax, and the consumer credit bureau Experian.

A Rising Risk

The risk of identity theft may seem abstract, but it is a very real problem. In 2017, the Identity Theft Resource Center counted a record high 1,579 data breaches, or hack attacks, into business systems that store private financial information. The breaches included an attack on the credit reporting agency Equifax (EFX), which alone exposed more than 178 million personal financial records of consumers in the U.S., Canada, and Great Britain.

Industry sources estimate that the average victim of identity theft suffers an out-of-pocket loss of about $4,000 and spends about seven hours recovering from the practical effects of the incident.

A 2019 study found that some 14.4 million Americans were victims of identity theft in 2018.

And, as consumer technology evolves, so do the tactics employed by criminals. By 2020, they were increasingly targeting retirement account records and mobile phone records.