Insurance Policies for Credit Card Theft

Travelers Insurance of Hartford first offered a policy to cover identity theft in 1999. Several other insurance companies are now offering similar policies. However, Carrie Spencer noted in her article in the Greenwich Time that such coverage has been added to only one percent of homeowners' policies, and that very few claims have been filed.

The insurance does not cover losses caused by fraudulent use of a stolen credit card, but does cover the expenses incurred to restore credit. Such expenses would include "copies, mail, calls, time lost from work, even attorney fees." Premiums for $25,000 in coverage range from $10 to $40. The potential market is fairly large, with the Department of Justice estimating that there are between 500,000 and 700,000 identity thefts per year. Moreover, the frequency of identity theft is rising, as well as the costs involved in restoring credit lines. Spencer reports in her article that victims find that they have to cancel their credit accounts several times "because the collection agencies keep opening them."

Consumers might think that identity theft is not a big deal, since they do not have to cover the losses of creditors. Most probably do not anticipate the costs to themselves in terms of their time and aggravation. One report released in 2000 showed that "victims spent an average 175 hours and $8,008 in legal expenses." The study summarized the costs incurred by 66 victims who called the California Public Interest Research Group.