Identity Theft Protection Services: Do You Really Need One?

The odds are good You’ve encountered an identity theft protection service in the past year, even if you’re not looking to sign up for one. Identity protection services are offered as remedies in data breach settlements; They are add-ons to bank accounts and credit cards; They are even found in antivirus suites.

Its popularity and reach should come as no surprise given the sheer scale of the problem. The FTC’s Consumer Watchdog Network, which tracks fraud, identity theft and related issues, received 6.47 million reports in 2024 alone — the highest number to date. The average loss was $497, and more than 124,000 reports claimed a loss of $10,000 or more.

When it comes to protecting against identity theft, details matter. “I will tell you that not everyone is created equal,” says Tracy (Kitten) Goldberg, director of cybersecurity at Javelin Security & Research. “Some are very valuable, some are not worth the investment.”

Identity protection is insurance

The most important thing to understand about identity protection is that it is an insurance product.

Most identity protection services also provide monitoring services, but the basic service you purchase is an insurance policy that protects against losses caused by identity theft.

In this sense, the term “identity protection” is arguably misleading. It means an active attempt to protect your identity from those who want to steal it. In fact, most identity protection services are interactive. They offer compensation for any damage caused by identity theft after the fact.

This is important to understand, because as with most insurance products, the devil is in the details. Identity protection services often provide headline numbers about total covered damages, but the language surrounding this coverage is critical and includes various sub-benefits.

For example, NordProtect promises up to $1 million in reimbursement for eligible expenses. But expenses for “lost wages, child/elder care for time taken to address identity theft” are capped at $5,000. This type of warning is typical, and I still recommend NordProtect overall. But if you think the $1,000,000 headline figure will compensate you if the stress of the event puts you out of business for a few months, you’ll be in for a surprise.

Watch out for scams, blackmail and bullying

Goldberg says you should pay attention to what types of identity theft are covered, as coverage is often narrower than you assume. “You have to read between the lines a little bit,” she says. “If you fall victim to what is known as a scam, or a social engineering attack where you are forced to provide information about yourself, you are likely not protected.”

Fraud is not the only type of cybercrime that is often exempt from identity theft policies. Other common exceptions include cyber extortion (which usually involves ransomware), cyberbullying, and property fraud. I think most people would describe these events as identity theft when speaking casually, but identity theft services may disagree.

Each policy will identify a qualifying event of identity theft, and the ones I reviewed were more focused on financial transactions such as unauthorized bank transfers and fraudulent accounts or loans created in your name, largely because these are the most widespread and harmful crimes.

Even here, the details can be difficult. For example, Lifelock’s current core policy documents exclude cryptocurrency entirely. If someone wipes out your Bitcoin wallet, or anything else that’s considered digital currency, you’re out of luck — unless you also have Lifelock’s cybercrime coverage, which adds protection against loss of digital currency.

Despite the drawbacks, identity protection is still worth it

The many exceptions found in identity protection policies are annoying. But like other forms of insurance, that doesn’t mean identity protection isn’t worth the effort. Homeowner’s and renters’ insurance policies also include pages and pages of exemptions, but most people still find the coverage worthwhile.

Unfortunately, identity theft is a common problem even for people who guard their personal data closely. Goldberg points out that even people who are careful today were often not as careful in the past. “The digital persona I present today is different than it was 15 years ago,” she says. “I was sharing a lot of information about myself and the people I was in contact with.”