If someone steals your identity, having some way to protect yourself against the unpleasant consequences sounds like a good idea. However, you should know that identity theft insurance is not a perfect solution.
First, keep in mind that many of the identity theft insurance plans and other related services are being offered by the same organizations, such as banks and credit card companies, that are sometimes failing to protect your personal information. Insurance programs are revenue-producing programs that may not meet all of your needs.
Consumer experts say that most people don't need identity theft protection. Why?
Identity theft insurance doesn't reimburse you for money that is stolen from you. Some policies pay expenses such as lost wages (often capped at $2,000) and legal fees, but a lawyer is usually not required to resolve an identity theft case. Your main expense will be your time spent dealing with creditors to provide documentation and work out the issues. Even though some plans claim to cover the costs associated with resolving an identity theft case, the burden of working with creditors will still fall on you, because most creditors won't deal with anybody else.
Finally, identity theft is usually committed by someone known by the victim, often family members, but identity theft insurance generally doesn't pay if the crime is committed by a family member, so you're not protected against the thing that is most likely to happen.
As an alternative to spending your hard-earned money on identity theft protection insurance, take steps to avoid being a victim. Protect your social security number. Pay bills online instead of having them mailed to you. Shred documents that contain personal information. Opt out of credit card offers (call 888-5-OPTOUT) to reduce the chance that an offer could be stolen from your mailbox or trash and used to set up an account without your knowledge.