RSM Resources

Identity theft is the fastest-growing consumercrime in the nation and tops the U.S. Federal Trade Commission (FTC)list of consumer complaints. According to the FTC, 9.3 million peoplewere victimized by identity theft in 2004. The most recent report(2003) by the U.S. Justice Department estimates it affected 3.6 millionhouseholds, and pegs the direct and indirect costs to U.S. businessesand individuals at $54 billion.

Not surprisingly, the increase in identity theft has given rise to identity-theft insurance. But is such protection necessary?

Safeguard first

Thepotential losses from identify theft certainly make insurance worthconsidering. In addition to direct losses such as fraudulent charges,the average monetary cost and time spent trying to recoupidentity-theft damage falls anywhere between $500 to $1,200 and 30 to60 hours per individual, experts say. These costs don’t include addedcomplications such as harassment by lenders, loan rejections, utilityand vendor cut-offs, cash-flow problems, liability suits, fines, lossof clientele, and damage to psyche and reputation. To make mattersworse, identity-theft victims may not discover the fraud until weeks,months or even years after the fact when it’s already reached the stageof collection or litigation.

Beforeyou rush out to buy insurance, Marc Courey, a director with RSMMcGladrey’s Risk Management practice, says business owners can andshould take these two steps to safeguard their identity and business:

• Disentangle your personal and business finances as soon as possible and to the greatest extent possible.
• Proactively protect your personal information and monitor your credit history.

Ifyou still want extra peace of mind, consider insurance or the servicesof a credit-monitoring company. Many midsized businesses arecorporations or limited liability companies (LLCs). A main advantage ofsuch structures is to separate and insulate personal assets andliabilities from those of the business.

Additionally,if your business’s credit results from its own creditworthiness, andthe business incurs debt it’s unable to repay, your personal assets(savings, investments, house, car, belongings) are not at risk. By thesame token, your personal credit rating does not play a role in alender’s decision to extend credit to your business.

Asan owner of an unincorporated company, should your business suffer amajor financial setback due to identity theft, you would be legally andpersonally responsible for all business expenditures and debts, even ifyour company goes out of business.

Whilethere is no way to absolutely protect yourself against identity theft,you can take some fairly simple, commonsense and constructive steps tominimize the likelihood of becoming a victim.

• Guardyour personal information, including your Social Security number, birthdate and driver’s license number. They are key to your credit reportand banking accounts and are the prime targets of criminals. Do notprint more information than necessary, especially your Social Securitynumber, on your checks. Order your Social Security earnings andbenefits statement once a year to check for fraud.
• Monitoryour credit report regularly. It contains your Social Security number,employment history, a listing of all account numbers (including thoseyou have closed) and your overall credit score. An amendment to thefederal Fair Credit Reporting Act requires each of the major nationwideconsumer reporting companies to provide you with a free copy of yourcredit report, at your request, once every 12 months. To order yourfree annual report from one or all the national consumer reportingcompanies, visit www.annualcreditreport.com orcall 877.322.8228 toll-free. Ordering a copy of your credit report fromone of the three major nationwide reporting companies every four monthsenables you to periodically review your credit history during each yearwithout charge.
• Shred all old bankand credit statements, credit-card offers, and any other type ofdocumentation that contains personal information.
• Removeyour name from the marketing lists of the three credit-reportingbureaus to reduce the number of preapproved credit offers you receive.
• Do not carry extra credit cards or other important identity documents except when needed.
• Photocopythe contents of your wallet. Copy both sides of your driver’s licenseand credit cards so you have all the account numbers, expiration datesand phone numbers if your wallet or purse is stolen.
• Don’t mail bill payments and checks from home. They can be stolen from your mailbox. Take them to the post office.
• Carefullyand thoroughly examine the charges on your credit-card and bankstatements on a timely basis (too long a time lapse may limit yourrecovery options).
• Use differentcredit cards for different purposes. For example, use one for everydaypurchase, one for online purchases and one for travel (especiallyforeign travel). This enables you to easily monitor usage as well asshut down accounts with minimal disruption and inconvenience, ifnecessary.
• Periodically run apersonal background investigation on yourself to screen not only forcredit-related issues but identity theft such as someone using yourname as an alias, which could result in a criminal or civil judgment.
• Nevergive your credit-card number or personal information over the phone orInternet or through the mail unless you have initiated the contact andtrust that business.

Consider insurance

Ifyou’ve safeguarded your personal information but want additionalprotection from potential losses resulting from identity theft,consider purchasing insurance. The National Association of InsuranceCommissioners cautions consumers that identity-theft insurance does notprotect you from becoming a victim, nor does it cover direct monetarylosses that you might incur. What the insurance does cover is the costof reclaiming your financial identity, such as the costs of makingphone calls and copies of documents, mailing documents, and possiblytime off work and attorney fees.

Theassociation suggests some key issues to consider before signing up foridentity-theft insurance. First, check your homeowner’s insurancepolicy; it may already include identity-theft coverage. If not, you maybe able to add it to your policy for a small fee. Also, check yourcredit-card policies; some offer identity-theft assistance for free.

Other questions you should ask before signing up:

• What are the yearly costs? Typical costs range from $20 to $100 a year.
• What are the policy’s limits? Most limit coverage to between $10,000 and $15,000.
• Is there a deductible? Some policies require you pay your first $100 to $500 of costs.
• Ifthe policy covers lost wages, are there restrictions? And what isrequired to trigger this coverage? If you use your vacation time, forexample, that may not qualify as unpaid leave and lost wages.
• If the policy covers legal fees, find out if there are limits and if the insurer needs to preapprove legal work.

Also,remember that identity-theft victims typically aren’t liable for bankand credit-card payments and charges they don’t authorize, provided thecreditor receives notice in a timely manner.

Aswith any product or service, make sure you understand what you’regetting before you buy, and be sure to do some comparison shopping. Ifyou decide to buy an identity-theft insurance product, check out thecompany with your local Better Business Bureau, consumer protectionagency and state attorney general to see if they have any complaints onfile.