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First off, don’t think identity theft can’t happen to you. It happened to about 12.6 million Americans in 2012, costing nearly $21 billion, according to a Congressional Research Service report. That was up from 11.6 million instances in 2011 and 10.2 million cases in 2010.

When their identities are stolen, victims face a time-consuming process to recover. Many homeowners insurance providers now offer identity theft protection, either as a standalone policy or as an addition to a standard home insurance policy. Coverage can cost as little as $25-$50 annually. But it’s important to realize what identity theft insurance does – and doesn’t do.

What identity theft insurance does

Understand that standard home insurance policies do offer some coverage for the theft of credit cards and money, though that coverage doesn’t go far. Limits usually are set at $50 for credit cards and $200 for cash.

Identity theft insurance helps by reimbursing you for some costs involved in regaining your identity and correcting the damage done to your credit report. That includes the cost of phone calls, notary and certified mailing expenses, and lost wages for the time you take off to restore your identity.

Some coverage calls for victims to receive help from case managers who will work on your behalf to contact creditors and credit bureaus to get you back on track.

What identity theft insurance doesn’t do

Most types of insurance policies reimburse policyholders for losses, but this is not true for identity theft protection. This is important, so we’ll repeat it: Identity theft coverage does not cover direct monetary losses incurred while your identity is stolen. If an identity thief uses your credit card information to buy a suit (and get two free), you won’t be reimbursed for what he spent. (Your bank or credit card issuer might limit your losses, however; be sure to check the terms of your cards.)

All that said, identity theft coverage shouldn’t be pooh-poohed. The expenses it does reimburse are real and can add up quickly. Also keep in mind that coverage varies from provider to provider. The average coverage limit usually is set at up to $25,000, but check carefully with your carrier when you purchase protection.

The best defense starts with you

The best way to deal with identity theft is to prevent it from happening in the first place. The following tips can help you be proactive:

  • Be cautious when shopping online. Make sure the vendor has SSL encryption (if it does, the URL will start with https:// instead of just http://).
  • Look at your credit card and bank statements closely and frequently to check for suspicious activity.
  • Don’t reveal your Social Security number or any other sensitive information over the phone or online unless you initiated the contact.
  • Be careful about logging onto your computer in public places.
  • Don’t carry your Social Security card in your wallet.

Despite all your best efforts, data breaches can dump your information to the general public – it seems to happen with giant retailers all the time. Such events aren’t harmless. Javelin Strategy & Research, in a 2013 report, estimates 25% of people notified of a data breach later found that they were victims of identity theft.

If your identity is stolen

If it happens to you, take these steps:

  • Freeze your credit report. This will make sure no can obtain new credit based on your information. Make sure you contact all three major credit agencies.
  • Let your bank and any other credit card issuers you use know as soon as possible. It’s good to keep a list of your cards, but don’t put your card numbers on this list – it could wind up in the wrong hands.
  • Tell the Federal Trade Commission. It will have you fill out an Identity Theft Affidavit.
  • Tell the police. Get a copy of the police report.
  • Determine whether your Social Security number has been compromised. If so, you’ll need to contact the Social Security Administration and the Internal Revenue Service.

You can recover from identity theft, but it isn’t fast or easy. Remember, it can happen to you.

Arthur Murray graduated with a bachelor’s degree in journalism from the University of North Carolina at Chapel Hill. He is editor of the Homeowners Blog at

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