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How Does Identity Theft Insurance Work?
Identity theft insurance helps you recover after your identity is stolen, not by stopping fraud, but by covering the cost of restoration and giving you expert help throughout the process. It works in two main ways: reimbursing specific out-of-pocket expenses and assigning a specialist to manage your recovery.
1. Coverage kicks in after the fraud is discovered
Once you suspect identity theft, your next step is to report the incident to your insurance provider. Most policies require notice within 60 to 120 days of discovering the fraud.
You’ll need to:
- File a police report.
- Document the fraud (credit reports, bank statements, legal notices).
- Cooperate with your insurer during recovery (place credit freezes, respond to creditor inquiries).
2. A case manager handles most of the recovery work
Most identity theft insurance policies include restoration services, meaning you don’t have to navigate the process alone. You’re usually assigned a fraud specialist who helps you:
- Contact banks, credit bureaus, and government agencies.
- Dispute fraudulent accounts and remove incorrect entries.
- Recover your credit and reclaim stolen credentials.
- Refile denied applications and reissue documents like passports or driver’s licenses.
Some plans also offer credit monitoring or Dark Web alerts, but these are part of bundled identity protection services like Aura.
3. You’re reimbursed for eligible recovery expenses
Identity theft insurance also reimburses you for many of the practical costs of reclaiming your identity, from phone calls, mailing documents, and replacing IDs to lost wages, legal fees, and child or elder care expenses during your recovery. More specifically, some of the out-of-pocket expenses covered may include:
- Lost wages if you need to take time off work (usually with weekly or total caps).
- Legal fees for hiring an attorney or for court filings.
- Costs to replace IDs, notarize documents, or send certified mail.
- Credit-related expenses like getting credit reports, placing fraud alerts, or reapplying for loans.
- Care expenses for children, spouses, or elderly family members during recovery.
- Phone and mailing costs tied to resolving the case.
- Bank fees, such as overdraft charges caused by the fraud.
You’ll need to submit receipts, bank documentation, and official notices to receive reimbursement. Most claims are paid within 90 days of approval.
Without identity theft insurance 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.
- 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 →
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 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.
