Five reasons why you don’t need ID theft insuranceWhy identity theft cover is rarely worth it

25 September 2010

ID Fraud

Be on your guard against fraudsters 

Providers of identity theft insurance are making massive profits – but the service they provide probably isn’t worth paying for, according to Which? experts.

With many people concerned about the security of their credit cards, bank accounts and personal details, perhaps it’s no wonder that companies providing identity theft insurance are convincing more of us to part with our cash.

If you’ve taken out a new credit card or current account recently, the chances are the provider tried to flog you one of these products – but with card protection policies costing around £30 a year and identity theft insurance costing around £70 annually, our experts say you’d be better off going without.

Here are five reasons why we think identity theft insurance is rarely worth paying for.

1. You don’t need an insurer’s help to check your credit report

In some cases, ID theft insurance policies include access to your credit report, along with alerts that will let you know if any information in it changes.

However, this won’t provide you with a complete picture of the data being held on you; there are three credit reference agencies (CRAs) in the UK, and any ID theft insurance policy is likely to include access to the files held by just one.

In any case, you can access your own statutory credit reports online or by post at a cost of just £2 per credit reference agency. You could even view your files for free by signing up to the free trials CRAs offer – although you must be sure to cancel any direct debits you set up before you start being charged for the service, unless you’re prepared to pay for it.

For more information on checking your credit file, read the Your credit report explained advice guide.

2. You have ‘automatic’ insurance for losses arising from identity fraud

You might be offered impressive-sounding levels of cover for losses that may arise due to fraud. A promise that you’ll get £100,000 worth of protection might seem tempting – but in reality, you already have free cover under the Banking Conduct of Business rules and the Lending Code.

Under these rules, your liability is actually limited to just £50, provided you haven’t acted fraudulently or with gross negligence. This is less than the average identity theft insurance policy costs, and often banks and credit card providers will waive this fee anyway.

3. You may not be able to claim for lost cash

Replacing your cash if your wallet is lost or stolen is a key feature of many card protection policies. But watch out – various exclusions mean it might be quite difficult to claim.

You may find your cash is only covered if it is stolen alongside your card in a foreign country. What’s more, some policies state that they will only pay out if you have ‘original documents to prove that you had the cash or banknotes immediately before the loss or theft’. Therefore, unless you have withdrawn the cash just before it is stolen and you keep your cashpoint receipt, your claim is unlikely to be successful.

4. ‘Protective registration’ with CIFAS costs less than £15 a year

If personal documents, such as your passport or driving licence, are stolen, protective registration with CIFAS, the UK’s fraud prevention service, means an alert can be put against your name. If an application is then made in your name to a CIFAS member, CIFAS will carry out extra checks to make sure the application is genuine.

Standalone registration for this service only costs £14.10 a year, should you feel you need it.

5. You could be paying for less identity theft insurance than you’ve already got!

Not only are you already covered by banking regulations for losses from a lost or stolen card, but the exclusions on some policies mean you’re actually paying to get less than your statutory protection.

Barclays, HSBC, Lloyds TSB and Nationwide Building Society all limit the payout they’ll offer if you lose your card and your Pin has been used, to £50 or £100. Under banking rules, however, unless you have been negligent, the most you should have to pay is just £50.

Which? experts say being vigilant yourself is likely to be more beneficial than to paying a company for ID theft cover. You can read more about protecting your personal details and accounts in the How to protect yourself from ID fraud advice guide.

Principal researcher Rebecca Fearnley says: ‘Banks, building societies and the companies selling these policies are playing on our fears and making money from our concern about ID theft and bank fraud. They’re selling us expensive policies we don’t really need, and which we’re unlikely to ever claim on.’

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