Is identity theft protection worth it?

If your personal details are stolen it can cost you money and impact your credit rating. Find out whether paying for ID theft insurance is a good idea and what measures you can take to protect your identity.

Eve Powell
Eve Powell
Updated 26 August 2022  | 5 mins read

Key points

  • Any fraudulent activity carried out using your details can negatively impact your credit report and cost you money
  • ID theft protection can be bought as standalone cover or as part of your home insurance and covers the cost of reinstating your identity
  • Your bank should reimburse you for any money stolen if you’re a victim of ID theft, as long as you haven’t been careless with your details
  • All credit cards should include ID fraud protection, but you can also sign up to ID theft alerts from credit reference agencies

What is ID fraud?

Identity fraud is when someone steals your personal details and uses them to purchase goods and services, or to open accounts in your name.

Your personal information might be stolen by someone going through your post or rubbish to find paperwork, like bank or credit card statements.

Criminals can sometimes also access information you’ve shared online, or that’s stored on a company’s computer system, to start using your identity.

As well as potentially stealing your money, fraudulent activity in your name could impact your credit rating making it more difficult to access loans and credit in the future.

It’s possible to steal the identity of both living and dead people.

How can fraudsters use your identity?

You might never find out how your personal information was stolen, but once it’s happened you could find that it’s being used to:

  • Open a bank account
  • Open new utility accounts in your name
  • Access credit cards, loans and state benefits
  • Order goods in your name
  • Take over your existing accounts
  • Take out mobile phone contracts
  • Obtain genuine documents, like passports and driving licences, in your name

If your identity is stolen and used in this way, it counts as identity fraud and is a criminal offence.

What does ID theft protection cover?

Identity theft insurance is designed to cover the costs you might incur from being defrauded.

It’s available as a standalone policy and is sometimes offered as an add-on to your home insurance cover.

ID theft protection cover typically includes:

  • A 24/7 helpline to provide expert advice and guidance
  • Removing computer viruses
  • Repairing a damaged credit report
  • Credit monitoring services for early detection of fraud
  • Cover for the cost of reinstating your identity, including legal fees, phone calls and taking time off work to deal with the fraud

Do I need ID theft insurance?

You should be aware that ID theft protection doesn’t cover you for any money that’s taken from your account if your identity has been stolen.

Instead, if this happens, you should be reimbursed by your bank as long as there’s no evidence to show you’ve been grossly negligent, for example if you’ve told others your PIN or left important documents lying around.

Plus, it’s unlikely you’ll incur many of the costs that this type of insurance covers you for because your bank should investigate the fraud and reimburse you.

Before you take out any cover, make sure you read the terms and conditions carefully, as well as taking a look at any exclusions.

Signs that your ID has been stolen

Identity theft is on the rise, with a 22% increase in the number of cases recorded in the UK during 2021, according to Cifas.

Here are some of the signs to watch out for that may signal your ID has been or might be stolen:

  • Some of your important documents have been lost or stolen, like your passport or driving licence
  • Post from your bank or utility provider doesn’t arrive
  • Items appear on your credit card statement that you don’t recognise
  • You apply for state benefits but are told you’re already receiving them
  • Your application for a loan or credit card gets denied for no obvious reason
  • Your information was part of a data breach
  • You receive letters from solicitors or debt collectors for debts that aren’t yours
  • You receive bills or receipts for things you haven’t ordered or bought

What should you do if you’ve been impersonated?

It’s good to be prepared and know what you need to do if you become a victim of ID theft or suspect your personal details have been stolen.

You’ll need to act quickly and take the following steps:

  1. Contact your bank

    Do this as soon as possible. The phone number to report security issues will be on your bank statement and the bank’s website. They’ll act straight away, freezing or cancelling cards and chequebooks, so no more money can be taken

  2. Change passwords and login details

    Do this for any affected accounts and if you use the same passwords and usernames for other accounts, change them too. A good tip is to use a sequence of three random words, which is harder to hack

  3. Contact lenders if you’ve received bills, statements or demand notices

    If you’ve received suspicious mail for accounts and issues you weren’t aware of, contact the lender directly to let them know and to find out more

  4. Check your credit report

    Fraudulent activity can affect your credit rating, impacting your future chances of getting approved for credit. You can check your report through one of the three main credit reference agencies: Experian, Equifax or TransUnion

  5. Make a list of all fraudulent activity

    Note any applications to open new accounts that have been done in your name and any that have already been opened. You’ll need to let the credit reference agencies know so that this can be recorded on your report

  6. Report all lost or stolen documents

    Any important documents like passports, driving licences and cheque books will need to be reported to the relevant organisation so they can cancel them and reissue you with new ones

  7. Contact Royal Mail

    Do this if you suspect that someone has set up a mail redirection on your address or think that your mail is being stolen. You should also have your post forwarded for at least six months when you move house

  8. Inform the police

    As well as taking the above steps, you should inform your local police station using its non-emergency number. You should also report it through the Action Fraud website

Mis-selling ID theft protection

In the past, banks and credit card providers were found to have mis-sold ID theft insurance when people didn’t need it or they weren't informed of the exclusions.

Typically, this was done alongside taking out a credit card to give protection against credit card and identity theft costs.

However, these providers overstated the risk of ID fraud and failed to mention this type of insurance wasn’t essential because banks have to cover the costs for fraud, unless they can prove the customer was grossly negligent.

The premium also often included a charge for accessing credit reports, which is usually free to do.

So, if you do decide to take out ID theft protection, make sure you understand what the cover does and doesn’t include and check for any added extras you might be charged for.

Alternatives to ID theft insurance

If you want a cheaper alternative to taking out identity theft protection, there are other ways you can protect yourself:

Protective registration

If you’ve noticed unusual activity on your account or you think your personal details have been stolen, you can use the fraud prevention service’s Cifas website for protective registration, which costs £25 for two years.

This tells any organisation that uses Cifas data to pay special attention. They’ll do extra security checks when your details are being used to apply for their products or services, but this does mean that any application you make may take longer to be processed.

Credit reference agencies

It’s a good idea to check your credit report regularly.

To see whether you’ve been affected by ID theft, it’s best to view reports from the three main credit reference agencies once a year.

You can usually do this for free, although sometimes this means signing up for a 30-day free trial, which you’ll need to cancel before the trial ends if you don’t want to start paying.

Credit report alerts

If you pay a monthly subscription to one of the credit reference agencies, this fee typically includes identity theft monitoring.

This will scan certain websites for your personal and financial details and alert you if your information is found to be at risk.

You may also have access to dedicated fraud experts who can advise you and contact other companies and credit rating agencies on your behalf to alert them to any fraudulent activity.

ID fraud protection with credit cards

All credit cards should automatically come with ID fraud protection. Most credit card providers will monitor your account for suspicious card activity and check whether any unusual activity is legitimate.

Don’t just rely on this though, you’ll still need to check your credit card statements and let your provider know straightaway if your card’s been stolen or has gone missing.

How to stay safe from online scams

There are ways to protect yourself from falling foul of identity theft online. It’s a good idea to:

Create a strong password using three random words - Longer passwords are much harder to hack. The best way to do this is by choosing three random words you’ll remember

Install up-to-date anti-virus software - Software updates fix weaknesses, making it harder for criminals to access your data. Setting devices to update automatically will help make sure you’re covered

Double check emails and verify links - Always check that emails from your bank and other providers are genuine. Look for inconsistencies in email addresses, links and email domains

Turn on two-factor authentication - Many online services now offer this free security measure. Usually you’ll be sent a text or code to use when you log in

Review your privacy and security settings on social media - You should also be careful about who you connect with and think about what you’re posting and who has access to it