Identity Crisis

By Mary Rowland

ID thieves prey on your personal information. Here’s how to foil them.

The Federal Trade Commission’s mailbag bulges with evidence of one of the creepiest byproducts of the technology age. A letter from one man complained that when he renewed his driver’s license by mail, it arrived with someone else’s face on it. A woman reported that a crook used her Social Security number on his arrest sheet.

Identity theft, or ID theft, is one of the fastest-growing financial crimes, victimizing 7 to 10 million people a year, according to the Privacy Rights Clearinghouse. With your Social Security number, credit card number, driver’s license, or passport, a person you’ve never seen can create a fresh identity—while spoiling your good credit record.

Crooks capture your personal information by stealing wallets and purses; “dumpster diving” (looking for credit card statements and loan applications in the trash); stealing mail from mailboxes to get new credit card applications or account numbers from bills; tapping into your credit report by posing as an employer or landlord; or “phishing” for your personal account information via bogus e-mails.

If your records are stolen and misused, you may find you don’t qualify for loans, mortgages, the purchase of a car, or any type of credit.

What can you do to reduce your chances of becoming a victim of ID theft? First, make it harder on the thieves. Don’t carry your Social Security card or passport unless absolutely necessary. Check each credit statement you receive carefully to make certain you can account for all the charges. Safeguard any papers with your personal information or account information, and shred any you place in the trash.

Also, watch out for those who troll the phone lines or Internet trying to get you to divulge information. Never give account information or personal data over the phone unless you initiated the call. If someone sends you an e-mail asking you to “confirm” your account information, don’t fall for it—legitimate businesses don’t operate that way.

If you learn that your identity has been stolen, you’ve got to play catch-up—and fast. In most cases, you will not be forced to pay off charges run up by an impostor. But identity theft can ruin your credit rating.

Call the FTC’s Identity Theft Hotline at 1-877-438-4330 and report the theft. More information is available at www.consumer.gov/idtheft. Contact the fraud department of one of the three major credit bureaus and ask them to place a fraud alert on your file. They are Equifax at 1-800-525-6285 (www.equifax.com); Experian at 1-888-397-3742 (www.experian.com); and TransUnion at 1-800-680-7289 (www.transunion.com). If you notify one of the three, the other two will be automatically notified, and you will be sent reports free of charge. File a police report about the theft and keep a copy for your records. Then notify creditors of any accounts that you think might be affected and close those accounts. Be sure to go over all subsequent mail and credit statements especially carefully.

Take these steps, and you’ll reduce the chances that you’ll add to the growing volume of complaints in the FTC’s mailroom.

Home Equity

Pay a little now, save big later

We all know that refinancing a home to get a lower mortgage rate or cutting the repayment time from 30 years to 15 years can save you a bundle, because you’re slashing the charges you’ll pay in interest. But, with interest rates climbing, those options may seem out of reach for you.

Don’t despair. Marc Eisenson, one of my neighbors here in New York’s Hudson Valley, teaches us that even taking baby steps to reduce your mortgage obligation can bring big rewards. Eisenson, author of The Banker’s Secret, paid off his own mortgage when he was 27 years old.

The secret? Stop giving so much of your money to the banks in interest. Homeowners can save thousands of dollars in interest charges over the life of a loan by adding a little extra—say $25 or $50—to each monthly mortgage payment. For example, adding $25 a month to the payment on a 30-year, $100,000 mortgage, saves $23,337 over the life of the loan.

If you own a home, your mortgage company may have offered to sign you up for a “biweekly” mortgage plan whereby a portion of your mortgage payment is withdrawn from your bank account every other week. These plans will save you on interest payments over the long haul. But many mortgage companies take a bite by charging borrowers a set-up fee and monthly service charge to participate in this option. You’re better off skipping the fees and adding your own extra payment to your check. Make sure to designate on your check that the extra money is for paying down your principal balance.

Mutual Fund Mess

Over the past year, reports of mutual fund mismanagement and fraud left thousands of shareholders scratching their heads. The problems should serve as a wake-up call to investors to know what they’re buying and to hold down excessive fees. Some basic questions you should ask about funds you already hold or plan to buy:

Does the fund permit short-term investing? As an investor, you should plan to hold your fund for the long-term. When other investors use the fund to trade rapidly in and out, the costs go up for you. Look in the prospectus to find the fund’s policy on short-term trading. Many funds carry a redemption fee for shareholders that hold the fund less than 90 days or less than a year. This fee offers protection to you as a long-term investor.

Does the fund have high turnover? Turnover, which is expressed as a percentage of assets, refers to how often the securities in the fund are bought and sold. Turnover of 50 percent means half the stocks are bought and sold each year. Average turnover is 100. Some funds have 300 percent turnover or more. The lower the better. A fund with 50 percent or less is good. Index funds have very low turnover because they simply hold the stocks in a particular index.

Does the fund have high fees? Each fund has an “expense ratio,” which refers to the percent of the fund’s annual assets paid for administrative and management fees. This money is taken out of your investment each year. Again, the lower the better. Look for a fund that charges 1 percent or less in fees. This is usually expressed in basis points. A basis point is 1/100th of 1 percent. So 150 basis points equals 1.5 percent.

The mutual fund mess is not an excuse to stop investing, but it is a call to pay more attention to the costs of investing. Less is more.

Debunking Life Insurance Myths

It’s no secret that people are living longer. Improving mortality rates have prompted life insurers to cut rates, making this a good time to buy a policy. But before pulling out your checkbook, test your knowledge of what makes for a sound life insurance purchase.

True or false?

1. One of the first things you should buy for your newborn is life insurance.
2. A good strategy for saving money on a life insurance policy is waiting as long as possible before buying.
3. A woman who takes care of her children and elderly mother needs life insurance.
4. The cheapest and most efficient kind of life insurance is coverage for a specific need, like cancer insurance or the flight insurance you see advertised at the airport.
5. It makes sense to combine your life insurance with your investment needs.

Answers

1. False. The death of a child is a terrible tragedy. But life insurance makes the most sense when the policy covers the person with dependents, not the dependents themselves.
2. False. The best time to buy insurance is when you don’t need it. You must take a physical exam to prove your “insurability,” or good health. If you are not in good health, you may be denied insurance or charged a higher rate.
3. True. Life insurance is important for you if someone counts on your work, whether it is paid or voluntary. The work done by a caretaker is just as important as the work of a breadwinner. Both must be replaced.
4. False. Insurance that covers a specific cause of death is the worst kind. What you want is a broad policy that covers the death of the policyholder no matter what the cause.
5. False. Investment-type policies are used for estate planning and other more sophisticated financial needs and are unnecessarily expensive for the average person. The most economical type of insurance is called term insurance, which means it pays a benefit if the policyholder dies during the term of the policy. Term insurance is best for young families and those who need pure insurance protection.