Last week, Jeb touched a bit on unnecessary insurance policies, and I've got one more to add to the heap: Identity theft insurance.

Don't get me wrong. Identity theft is a problem, especially as we move towards a more electronically dependent way of living. But ID theft insurance isn't exactly the answer to protecting yourself—in fact, the insurance probably doesn't even cover what you think it does.

First, some context: if you get into a car accident, your insurance pays for it to be repaired. But, if your identity is stolen, the insurance doesn't repair your credit standing or clear you of any illegal activity that happened under your name. Ouch.

So what does ID theft insurance pay for? According to a recent article in Forbes magazine, ID theft insurance only pays for the expenses and time associated with cleaning the mess up yourself. And, while some agencies tout that they cover the lost wages for taking time away from work to straighten out your affairs (an average of 22 days, according to the Forbes article), the common coverage max for lost wages is only $2,000.

But for $25 to $60 a policy, having a little protection is better than nothing, right? As Forbes columnist, David Simons, points out, not really. Not when you compare the money you'd spend on a policy to the actual risk of becoming a victim.

"The media portray ID theft as an epidemic. Yet the chance of it hitting any one of the 200 million Americans with credit files is just 0.35%," says Simons.

A better solution: Contact your credit card companies and ask about the benefits that come with being a cardholder. Most companies now provide coverages for damages and losses after a card or card number were stolen. Chances are good that your bank or credit union also offers some identity theft protection, so be sure to contact your financial institution for details.

Of course, putting old mail, bills and credit cards through the shredder is always a good idea. I found this one through OfficeMax for under $20!

[related articles]:
Little Assurance from ID-Theft Insurance [Washington Post]
Unnecessary Insurance: Policies to Avoid [InsureMe Insurance Resource Center]