We’ve recently heard that some credit card companies are cold-calling their customers to try and sell them insurance against identity theft.

Most of us have read horror stories in the press about identity fraud – and it is a real problem.

However, identity theft insurance is fairly pointless, and as such is a bit of a rip-off. It’s important to bear in mind that:

• Your bank automatically covers any money lost from your account as a result of identity fraud, providing you haven’t been negligent (for example having your PIN written down by your credit card).

• You can easily monitor your credit card and bank accounts online for free.

• Banks and credit card companies have advanced systems already in place to alert them to fraudulent activity.

• Many credit card companies already have free identity theft assistance in place for their customers.

• Insurance can’t protect you from becoming a victim of identity theft – or the subsequent hassle that can ensue.

• Such insurance policies will only cover some fringe elements of the costs of identity fraud.

What’s more, the risk of being a victim of identity theft is not as high as you might think.

Although the problem is growing, less than 78,000 cases of ID fraud took place in 2008. Sounds a lot? In fact it’s still a relatively rare crime.

Also, the economic crisis has led fraudsters to concentrate their efforts more on creating fake identities. (There’s little point in stealing a real person’s identity if that person has trouble getting credit in the current economic climate!)

If you take some common sense precautions (keeping your PIN safe, shredding documents with your personal details on) you will reduce the risk still further.

The only real benefit identity theft insurance brings is that it buys some people peace of mind. But the cost (£60 – £100 a year) is quite high for the amount of cover you typically get.

A cheaper way to get peace of mind is to do the following:

• Make sure you regularly check your credit card and bank statements.

• Check your credit rating for free with Experian.

• If you’re seriously worried – or have previously been a victim of ID fraud – get Protective Registration with CIFAS for £13.80 a year. This will put a warning flag on your credit file, which tells banks to make additional checks to ensure that any application for credit or a new account is genuine. (Being registered won’t affect your credit rating – however, it could delay your own applications for credit.)

• Buy a shredder! (You can get one for as little as £7.99…)