How Does Identity Theft Insurance Work? Do You Need It?

What Does Identity Theft Insurance Cover?

Identity theft insurance covers out-of-pocket expenses like lost wages or notary fees related to recovering your stolen identity. Some insurance policies also reimburse stolen funds, but this usually only applies to non-recoverable funds taken via unauthorized electronic fund transfers.

Depending on your coverage, reimbursement/recovery may be available for expenses such as:

• Lost wages for some or all of the base wages you lose when taking time off from work to resolve identity theft issues.
• Notary fees associated with verifying important documents and affidavits through a notary service.
• Application re-filing costs for loans, grants, and other forms of credit.
• Credit report and dispute costs, as well as costs for credit freezes and thaws.
• Child, spousal, and elderly care required while resolving your identity theft issues.
• Phone and mail costs necessary to resolve your case.

Identity restoration services may also cover costs associated with:

• Identity monitoring and credit monitoring services, such as Dark Web monitoring. 
• Assigning a case manager or fraud specialist to communicate with creditors and order fraud alerts on your accounts.
• Replacing identification documents, such as driver’s licenses and passports.
• Hiring a private investigator to manage public record searches and fixes.
• Legal fees, such as attorney, bond appeal, and court filing fees resulting from fraudulent judgments or charges.
• Credit restoration fees, such as credit repair and counseling services.

Without identity theft coverage, any losses you incur could be permanent. For one Memphis woman, this totaled $81,000 — the amount identity thieves stole from her bank account in 2024, for which she was never reimbursed [*].

Even if you dispute the fraud and recoup your direct financial losses, you may still suffer indirect losses, such as legal fees and lost wages. Identity theft can also have a lasting impact on your credit score, leading to higher interest rates and denied loans.

Identity Theft Insurance Does Not Cover:

For the most part, identity theft insurance only covers recovery and reporting costs stemming from an identity fraud incident.  

Coverage depends on your plan, but the following list highlights the most common policy exclusions.

• Stolen funds not related to unauthorized electronic transfers, such as fraud by the insured or voluntarily giving up account access.
• Losses caused by computer system errors or unintentional clerical errors made by bank employees. Losses from cyberattacks may also be excluded.
• Identity fraud discovered before the policy date or not reported in the appropriate time frame. This is usually 60–120 days from the date of discovery.
• Loss of potential or unrealized income, such as failed commissions, investment income, or contracts. This also excludes losses sustained from business interruptions and reputation damages.
• Physical injuries or damages, such as property damage, bodily injury, or disability. Sickness and mental health issues are also not covered.
• Business-related losses, including losses connected to business-related activities or bank accounts.
• Personal property losses, including documents, jewelry, and coins.

4 Ways To Purchase Identity Theft Insurance

1. Stand-alone policies

Stand-alone identity theft insurance policies feature specialized coverage for identity theft-related risks. These plans offer uniquely-focused and thorough protections, but they may cost more than many alternatives and provide overlapping coverage with other plans.

2. Homeowner or renters insurance add ons

Many home insurance companies offer identity theft protection as an add-on to homeowners insurance and related policies. While these plans may provide limited coverage and protection, they offer convenient and bundled pricing options for existing customers.

📚 Related: Is Allstate Identity Protection Worth It? What To Know →

3. Bank and credit card add-ons 

Most credit card companies and financial institutions have built-in protections against identity theft and fraudulent charges, but a few offer additional identity theft insurance and support. These add-on plans may not provide the most extensive insurance coverage, but they do offer other bank-focused protections.

4. Identity theft protection plans

Most identity theft protection services include identity theft insurance. These all-in-one plans feature comprehensive identity protection — including identity theft prevention, restoration, and recovery.

While they provide protection far beyond just identity theft insurance, these plans usually call for a bigger investment than your other options.

📚 Related: Aura vs. LifeLock Comparison: 2024 Showdown →

Understanding the Claims Process

If you fall victim to identity theft, your insurance policy will play a key role in the remediation process. But there's a process you need to follow if you want to qualify for reimbursement.

• Report the stolen identity event to the provider. Inform your insurance provider through its direct support channel as soon as possible. Most policies need you to report the event within 60–120 days to qualify for insurance. 
• Connect with a support specialist. Most plans assign a support specialist to guide you through the process. This may include reporting the event to the Federal Trade Commission (FTC), banks, and law enforcement. You may also receive a claims kit to help you.
• Collect the necessary documents. You need to gather official documentation, such as a bank report detailing the fraudulent and unrecoverable transactions, and/or a police report.  
• File a claim under your Master Policy. Follow the claims procedure detailed by your support specialist or claims kit. You need to submit all required documents and proof of loss within the provided time limit.
• Cooperate in resolving the event. This may include placing credit freezes and fraud alerts with the credit bureaus and requesting fee waivers. You should also forward relevant documents to your insurer, such as legal notices and other communications.
• Restore your identity. You or your case manager may now work with creditors, issue credit disputes, and replace your lost personal documents.
• Claim insurance funds. For reimbursement, you must submit proof of loss and expense receipts and documents. Many plans offer payment within 90 days of a claim settlement.

Note: If you fail to report the identity theft or submit the required documents within the allotted time, you may invalidate your claim. Find out what's included and excluded in your Master Policy before submitting a claim.

📚 Related: What Is Credit Protection? Are You Making the Most of It? →

Do You Need Identity Theft Insurance? Here’s How To Know

Insurance offers peace of mind and protection against the bevy of identity theft expenses, but it's not the answer for everyone. 

If you're considering insuring yourself and your family, ask yourself the following:  

Are you at risk?

Some people carry more risk than others — including previous victims of identity theft, credit card fraud, and personal data breaches. Remote and online workers and those who share personal information online are also vulnerable.

You might also increase your risk of identity theft if you repeat or use weak passwords, click on links and attachments without discretion, and ignore device and system updates.

Can you do it yourself?

If you have the time, you can monitor your own identity. You can even handle the identity theft recovery process. In fact, a 2023 U.S. Department of Justice report found that over half of identity theft victims resolved their issues in less than one day [*].

To stay on top of identity theft, however, you need to be comfortable and willing to continuously review your own financial statements and credit reports.

Can you afford it? 

Identity theft insurance rarely comes cheap. Monthly prices for the types of insurance described in this guide fall between $1–$90. You might also be responsible for deductibles up to $500, which could be more than your losses.

If your personal finances can't accommodate this extra monthly cost, you might consider manually monitoring your identity. It’s worth noting here that the average out-of-pocket expenses for identity theft victims rose by 70%, reaching $202 between 2022 and 2023 [*].

Aura’s comprehensive plans include identity theft insurance, extensive identity protection, credit monitoring, and advanced digital security tools. Aura also puts a team of U.S.-based fraud experts in your corner 24/7 — keeping you safe from looming identity threats and supporting you and your family when you need it most.

Get up to $5 million in identity theft insurance. Start an Aura free trial.