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Identity theft insurance? Dave Ramsey says yes. Consumer reports (CR) says no.

The complication is that Dave recommends an identity theft insurance from Zander Insurance, where as CR says to say no to lifelock. Different brands different recommendations.

So

  1. do I need this?
  2. (yes subjective) Is Zander the way to go, or is Lifelock, or someone else entirely?
  • 2
    what does this policy cost, and what does it get you? – MrChrister Jun 8 '11 at 3:31
  • How does this insurance compare to freezing your credit records? – MrChrister Oct 17 '12 at 4:43
9

Zander insurance is a sponsor of The Dave Ramsey Show, and he often endorses them in the context of a paid endorsement. So you need to treat his "advice" in this context for what it is -- paid advertisement.

Also note that these services are NOT insurance -- they are service plans. Zander calls their program "Identity Theft Protection", and specifically states the following:

This is not an insurance product.

This is an administrative services contract, with restoration and ancillary reimbursement benefits, issued by ID Experts and in connection with Zander Insurance Group providing enrollment and preventative database management services.

That means that these products are service contracts, similar to what you buy for a dishwasher or car. The services provided are limited to whatever is in the contract, and is not regulated by your state insurance department. You need to read the contract terms -- they may be subject to unilateral change at any time, or you may have no recourse other than binding arbitration.

If you are concerned about identity theft, explore the options available to you at no cost. (ie. freeze your credit records for the cost of a US postage stamp, etc) These products aren't necessarily "scams" -- but they may or may not offer the best value to you. Figure out what they actually cover and what you need to do to protect yourself and make the decision that is right for you.

  • I suppose that this puts it on much more even footing to the other products than they want you to believe. – Andrew Redd Jun 10 '11 at 4:08
  • 2
    @Andrew Redd Perhaps... Lifelock in particular has a reputation for being a company that over-promises and under-delivers. Remember when the CEO used to talk about his SSN on commercials? He's been a victim of identity theft dozens of times! Zander from the limited look at their website that I did seems to be more factual about what they are selling. – duffbeer703 Jun 10 '11 at 12:21
5

I think one needs to first look carefully at what's meant by "identity theft". I lose my credit card and it's used by the finder for the day until I realize it's lost. That counts to the stats, but it hardly bothers me, nor would the insurance be helpful. Not long ago, the Boston Globe printed out every credit card they had on file, and used that paper to wrap their bundles to drop off at storefronts. I can't make this up. Coworker found out when charges starting hitting in Hong Kong. Card canceled. Add him to the stats.

The life-impacting true identity theft is far more rare. Is it worth insurance? Probably not.

2

Here's a quick&dirty way to go about insurance:

Take the probability of event occurring over given timeframe (say, 10 years). With Identity theft, this includes:

  • You compromise your password by writing it down to a stickynote, that gets stolen
  • Your computer gets rooted by software / hardware means AND the account information gets stolen
  • One (any) of your service provider with your CC (or close proxies to that) gets compromised
  • Your bank getting compromised

Let's say, for the average Jane the sum of these probabilities P(compromised) to be around 5% within a 10 year timeframe (YMMV, obviously). Let's further assume, that half of the compromised identities gets exploited.

P(your bank account's get exploited) = P(compromised) * P(exploited) = 2.5%

Let's further assume, that exploiting average Jane, taking her savings account, is worth 10 grands.

How much is Jane expected to loose on average over a 10-year period?

L = P(your bank account's get exploited) * Take = 10000 * 0.025 = £250

Now, according to first Google hit on identity theft insurance,

Identity theft protection generally costs between £3.75 and £6.99 a month or between £45 and £84 a year.

Hence, total cost of solution, for a 10-year period, for the most minimal insurance, which I'm not even sure whether it covers backing actual money:

3.75 * 12 * 10 = £450

In this case, Jane is probably better off without it.

Using the data above, at what apriori probability is this actually worth it?

P(your bank account's get exploited) * Take > 450 => Take = 10000

P(your bank account's get exploited) > 4.5%

In conclusion, you might want to look into Identity theft insurance, if either your estimated probability of having your account compromised, or the amount of potential take outweighs the cost of ownership.

Hope this makes sense, let me know if you have any questions.

  • 2
    I think it's rare to actually lose money to identity theft - it's the hassle of getting debt collectors off your back and the damaged credit rating that's the main issue. But if there really is a risk of losing substantial amounts of money, you need to consider the impact. All insurance is on average (across a population) not worth it on the basis of a pure risk * money calculation, otherwise insurance companies would make a loss; but people are generally risk averse and it's rational to pay to avoid a really damaging loss. If the loss is something you could afford, then it's rarely worth it. – Ganesh Sittampalam Jun 8 '11 at 6:43
  • If it's only money loss, you in most cases can rely on banks rolling back fraudulent transactions and returning unauthorized charges. However, you may have to spend considerable time and, if you are really unlucky, some money on cleaning that up, may even have to hire a lawyer to sort things out, etc. So it is really hard to quantify - how much it costs for one to discover somebody took a million-dollar loan in his name in another state? Even if you end up not paying a cent for the loan, I'd pay some money to make sure it never happens. – StasM Jun 8 '11 at 22:26
  • In the case of a compromised Credit Card provider, you already have zero liability from the CC company. In most cases, the CC provider will detect the fradulent transaction before you do. – myron-semack Jun 9 '11 at 12:42
2

Most identity theft insurance isn't really insurance per se. It's a pre-paid service to help you recover afterwards. You should look at the services they provide and decide if you can:a a) provide them yourself b) afford to pay someone to provide them c) do not need them

2

In this case, I don't buy the paid advertisement argument. He is popular enough that he has a certain amount of leeway to choose what he endorses, and has a lot to lose from a bad endorsement. Perhaps the argument could be made that he is emotionally involved though.

Dave has gone through dealing with going broke and resulting debt collectors and financial messes of his own making, is probably very sensitive to how it messes up peoples lives. This perhaps makes him more sensitive to the problems of identity theft than someone who has not had this experience.

When looking at insurance and related products, what you are doing is paying someone to take on a risk for you. The rule of thumb that Dave Ramsey seems to advocate is that if it is something that will destroy your family's life and finances if it happens, you should probably insure against it.

There are seven categories that Dave recommends, among them is identity theft protection.

The question you have to ask yourself is in the unlikely event that this should happen happen, could you handle it without ruining your life? If you are making $120,000 a year, you probably don't need collision insurance on your old beater car. If you have $3 million of retirement savings, you probably don't need life insurance. So, if you are confident that you can deal with the banks, creditors and the likes, or pay someone to help after the fact, then you should give it a pass.

As to the second part of your question, if you do decide you need it, I tend to trust Dave's judgement. When he first started with the ads, I remember him sending a number of callers with id theft problems to them to see if their system worked. He seems to bee a good businessman with good integrity, with a lot of reputation to loose with a bad endorsement.

1

"do I need this?"

There is little they can do that you can't do yourself, or that you aren't already covered for anyway by other policies/products (CC protection, for example). Ultimately it must be you who makes the call - it's an emotional decision, after all. But seeing you asked the question, I'll answer: No. For me it's a waste of money.

See this excellent, calm, rational, look at id theft coverage and some of the issues to think about: http://www.consumeraffairs.com/news04/2010/11/identity-theft-insurance-money-well-spent-or-not.html Note the number of free protections that already exist, and the simple things it suggests for how to protect yourself sans ID insurance.

Make sure you set aside the hyperbole for a moment and think this through. Don't assume you're in imminent danger. This brief article is just one example of how the headlines are misleading, and how the actual number of people who (a) experience ID theft and (b) suffer harm as a result, is quite small (US): http://ewireinformer.com/study-finds-%E2%80%9Ctrue%E2%80%9D-id-theft-not-as-prevalent-as-reported-34998.html

It may be you want the "piece of mind" (whatever that means) that comes with the insurance, and if so, good for you. Caveat emptor.

  • 1
    This is true, there isn't anything you can't do for free. I would never pay for such a service, but perhaps someone else values their time differently. But +1 for saying nobody "needs" it. – MrChrister Jun 10 '11 at 15:50

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