Stupid Investment of the Week

Over at MarketWatch.com, Chuck Jaffe has an article that identity theft insurance is his stupid investment of the week. To be honest with you, purchasing identity theft insurance is something that I have never really even thought of doing and the article explains a few reasons why this insurance is not the best choice in most cases.

One potential problem that I see with the identity theft insurance is people being lulled into a false sense of security and not being as diligent as they should in protecting their personal data.

As the National Association of Insurance Commissioners has noted, identity-theft insurance won’t protect you from becoming a victim any more than fire insurance would stop your house from burning down and “does not cover direct monetary losses incurred as a result of identity theft.”

Assuming that you were to purchase identity theft insurance, it seems that another likely issue of contention is exactly what is covered by your policy and how likely the insurance company is to pay out on various items. There is no doubt that victims of identity theft can rack up considerable expenses, including lost wages from time off work, as they struggle to resolve the problem.

But as is the case with any insurance policy, it is critical to understand the details and fine print. Some policies will not cover lost wages or have different interpretations of what constitutes lost wages. In most cases, even though identity theft insurance premiums are quite affordable, it is an insurance policy that is not worth the hassle and thus has been labeled the stupid investment of the week by Mr. Jaffe.

In my opinion, following the appropriate practices such as checking your credit report on a regular basis, shredding sensitive documents and reviewing bank and credit card statements should help minimize the risk of identity theft. In addition, one of the most damaging impacts of identity theft is the likely drop in your credit score and I do not see the identity theft insurance policy helping much in that regard.

So what do you think? Is identity theft insurance the stupid investment of the week or is it a worthwhile purchase in the event that you do become a victim?