Identity theft is a rising problem in America and around the world, as thieves target people to "become" them and take over their credit lines or apply for new lines of credit.  Homeowner's insurance can protect you against losses from identity theft - but know that it is not always automatic coverage.

Indentity theft statistics

In 2006, the latest year for which the FBI has compiled statistics, there were 1,255 open cases of identity theft being investigated by the Bureau.  Other agencies that investigate identity theft cases include local and state police, Attorney General offices in various states, and the United States Postal Inspector Service. 

One such case affected 165,000 people.  A man living in California was convicted in 2006 for stealing the identity of more than 165,000 people through a complex set of interlocking front companies.  He used those companies to access and download the credit reports of all of those people and steal their identities.

The FBI estimates that over 9 million Americans have had their identity stolen – and the majority did not know that happened until massive bills started showing up in the mail, or debt collectors began hounding them over the telephone trying to get back the money stolen via the fraud. 

The bills racked up by identity theft fraudsters sometimes amount to tens of thousands of dollars, and it can take untold, frustrating hours working to recover your good name and credit standing after the identity theft is discovered.

How homeowners insurance fits into the equation

When you buy a home, it is required by lenders that you carry insurance to protect the property against a variety of hazards, such as fire, wind, blowing debris, etc.  It usually will also include basic liability coverage, protecting the property owner if someone is injured on the property.

Typical things not covered are flooding, earthquake damage – and identity theft.  But all of these risks can be insured against at a price.

Often, the only way to get identity theft coverage is to request it from the agent selling you the homeowner's insurance policy, who will "rate up" the risk of identity theft, and quote you an addition to the premium.  If you accept, then a rider (also called an endorsement) to the homeowner's policy would be added, creating an insured position for you in case someone steals your identity.

Because identity theft insurance, and the riders to homeowner's insurance polices are so new, it is important to review the rider and/or separate identity theft policy before agreeing to it.  It might contain exceptions to coverage that you do not agree with; or, it might not provide what you consider adequate coverage for the risk of your identity being stolen. 

Identity theft insurance is not standardized across the insurance industry, and it is vital that you understand exactly what it is you are purchasing.

Typically, an identity theft insurance policy has three protections in it:

• Pays for any debts incurred as a consequence of your identity being stolen, up to a pre-determined maximum dollar limit
• Aid in contacting all creditors who might be affected, as well as creating a "watch" on your credit reports
• Working with credit reporting agencies to expunge damaging information on your report as a consequence of the identity theft.

Homeowners insurance can provide protection against many financial risks.  However, you may want to consider adding identity theft coverage to your existing policy, both for your piece of mind, and to protect yourself from the ever-expanding network of fraudulent credit being obtained in innocent peoples' names.

Ask your agent about adding an identity theft endorsement to your existing homeowner's insurance policy – you might be glad you did immediately.

See also: Compare homeowners insurance quotes