BT is getting into the insurance market by offering customers protection against identity fraud, at a price.

The telco's Identity Protection plan covers users of its broadband service for £50,000 of costs in the event that their identity is stolen. The service costs £44.99 for the first year and £59.99 a year after that.

But the Consumers' Association said in a recent report that identity fraud insurance is a product "no-one needs", since the banks are liable for any financial losses and thus the costs covered by insurance are for expenses only.

"Identity theft insurance is a fairly inspired piece of marketing; it cashes in on a wave of public concern about identity theft," reads the Consumers' Association report into expensive financial practices. "Profiting from anxiety or confusion is a strong point for many banks."

Last year the group gave high street bank Halifax its 'Useless financial product of the year' award for its identity theft insurance which costs £84 a year. Other products were less pricy, such as Alliance and Leicester's yearly plan for £29.

The Consumers' Association also highlighted Yorkshire Bank, which was telling customers to contact them about a credit card payment and then trying to sell them insurance for identity fraud, a practice it described as " trying to draw attention to services which they thought would be of interest in a proactive manner".

Rather than spend money on expensive insurance premiums, the Association advises people to invest in a shredder and beef up the protection on their PC.

"Risk prevention is better than cure," said Malcolm Tarling from the Association of British Insurers. "People need to take reasonable steps, such as buying a shredder. That's the most important thing."

BT is also offering a data backup service as part of the package. The 'Digital Vault' offers backup and storage of 300MB of data for £2.99 per month, 600MB for £4.99 per month or 1GB for £6 per month.

A 1GB USB flash card with security features built in is available in most high street shops for around £50.

"With our new security packages and services, we hope that customers can begin to feel safer and more confident when using their broadband connection," said Gavin Patterson, group managing director at BT's consumer division.