Should I Take Out Identity Theft Insurance?

Hi Scott,

I’ve been listening to an American money podcast, and they are always pushing the importance of ID theft insurance. Given how prevalent scams and identity theft are at the moment, would you suggest we take out this insurance, and, if so, could you provide a recommendation for us Aussies?

Manisha

Hi Manisha,

You're right to be worried: scams are completely off tap right now.

And insurance companies have a knack of working out what our darkest fears are and then turning them into incredibly expensive products that make them lots of money (and they often market them on podcasts!). 

Let me be clear: I do not recommend identity fraud insurance, extended warranty insurance, or moustache insurance (apparently cricket legend Merv Hughes once insured his soup strainer for $370,000).

Why not?

Because identity theft insurance won’t cover the stuff that actually gets people – falling for romance scams, getting tricked into ‘verifying’ your bank details, sending money to a fake Tax Office. They’re all scams, and no insurance policy will cover them.

Yet it is true that insurance will cover identity theft.

However, if someone steals your identity and takes out a loan in your name, Australian banks and credit providers are required to prove you authorised it. They usually can’t, so you don’t have to pay anyway.

Okay, so what can you do to protect yourself from identity theft?

First, shred any personal documents you don’t need, and lock up the ones you do need.

Second, monitor your credit file, which is where the fraud will show up first.

(Admittedly keeping tabs on this is a giant pain in the arse, because your data is spread across two competing credit agencies, Equifax and Experian, who sell your data to the banks. Legally you have the right to check your credit file for free, so do it!)

Third, in your banking app, set up transaction alerts anytime money moves. 

These three things are better and cheaper than insuring your moustache, right Manisha?

Scott