Is identity theft protection worth the money? -- Page 2

Gail Hillebrand, senior attorney at Consumers Union, the publisher of Consumer Reports, says it's usually not a good idea to purchase any single-purpose insurance policy.

"For instance, people should buy a health insurance policy, not one that just covers cancer."

Hillebrand cautions consumers that if the insurance is free, make sure it's permanently free and that you're not signing up for an automatic renewal where you'll pay a fee down the road.

"There's also the risk of a false sense of security. You still need to monitor your credit reports and your bank statements. Debit card problems only show up on bank statements. Not credit reports.

"There's an irony that banks, on the credit side, aren't terribly good at checking that it's you when they extend credit, and then they provide this insurance. We need creditors to take more care on the front end to prevent thieves from stealing accounts. We need more than insurance."

Linda Foley, of the nonprofit Identity Theft Resource Center, says the credit monitoring is pretty much a waste of money, but if you do pay for it, make sure the service is checking all three credit reporting agencies.

"Not just the first time, but on a daily basis. Some check all three the first time and then monitor just one or two. If they're checking all three bureaus five days a week, it has some merit. But it should be free. It's not the consumer that has allowed identity theft to grow so explosively."

Avivah Litan of Gartner, a research company, says consumer groups have a valid point but that the insurance is a step in the right direction.

"Banks need to be more proactive about closing security holes, but a lot of this is happening outside the bank's domain. One of the best things consumers can do is catch the theft right when it happens and that's what the Washington Mutual program does. It's not the end all and be all, but it's helpful, not harmful. It's the cost of being an American consumer."

U.S. Bank may have one of the most diverse identity theft insurance plans. For $9.99 per month, Privacy Guard monitors daily all three credit bureaus and notifies customers of any changes to their credit report. Customers also receive access to their Social Security records and their data on file with MIB, the medical information bureau, a clearinghouse that supplies records to insurance companies.

"We did a lot of due diligence on a number of different companies," says Teressa Sund, of U.S. Bancorp investments and insurance. "There are a lot of components that other providers offer, but we wanted something at the best price point, the best value for customers."

Is paying for identity theft insurance only for the nervous Nellies? How can you assess your risk? Even if you follow all the rules for preventing identity theft, there's no guarantee. The Federal Trade Commission says most identity theft is done by people who have a legitimate reason to see your personal information -- health insurance processors, car rental companies, employers.

It's important to keep in mind that this insurance only covers identity theft involving credit fraud. These polices won't help if someone uses your name when they're getting a traffic ticket or has taken over your identity and owes taxes in your name.