Identity Fraud Reimbursement Program

An Identity Fraud Reimbursement Program is a financial product that provides protections for consumers against fees, expenses and financial penalties in the event of identity theft.

An Identity Fraud Reimbursement Program provides consumers with a variety of protections in the event of identity theft. Sometimes referred to as identity theft insurance, these policies are offered both as stand-alone policies and as add-ons to other types of insurance policies such as homeowners insurance and car insurance. Some homeowners policies, for example, automatically offer some basic protections against theft of cash or credit cards, and offer an additional rider for increased identity theft protection for an extra fee.

Identity fraud reimbursements can cover a variety of direct and indirect costs. Direct costs include reimbursement and restoration of stolen funds. Indirect costs include legal fees, lost wages, notary fees, postage and other expenses accrued in the wake of an incident of identity theft. In addition to reimbursement protections, identity theft protection programs also often provide information and services geared toward preventing identity theft and restoring compromised credit scores.

According to industry estimates, an individual will spend an average of seven hours recovering from an incident of identity theft, with an average out-of-pocket loss of $4,000 per incident.

Depending on the policy, coverage can range from a few thousand dollars in benefits into the millions. As with all insurance policy products, customers should scrutinize the policy terms and understand what protections their policy provides.

The Bureau of Justice Statistics (BJS) classifies incidents of identity theft under one of three categories:

• Unauthorized use or attempted use of an existing account.
• Unauthorized use or attempted use of personal information to open a new account.
• Misuse of personal information for a fraudulent purpose.

A 2014 BJS report estimated that 17.6 million Americans over the age of 16, or about 7 percent of the population, were victims of identity theft in that year, with an overwhelming majority experiencing fraudulent use of their credit cards or bank account. This study indicated that losses from identity theft in 2014 amounted to $15.4 billion.

Research indicates that despite increased security measures by financial institutions, online merchants and other impacted parties, identity theft incidents continue to rise. In 2017, the Identity Theft Resource Center counted a record high 1,579 data breaches, including a significant breach of the credit reporting agency Equifax, which exposed more than 178 million records.