Life Insurance Fraud: What to Know and How to Protect Yourself

Life insurance should help provide financial security for your loved ones, but fraudsters sometimes target people seeking this protection.

Life insurance fraud can take many forms, from fake policies to pressure tactics that rush individuals into signing for unnecessary coverage. Often, fraud is a deliberate act someone commits on a policyholder. Other times, policyholders commit fraud when they intentionally fudge the truth on their applications.

Ultimately, these scams impact all consumers through delays and higher premiums. Thankfully, by understanding fraudsters’ tactics and taking proactive steps, you can help safeguard yourself from falling victim to these schemes. Here’s what to know.

The Impacts of Life Insurance Fraud

Fraud happens when an insurance company, adjuster, agent, or consumer deceives the other party for an illegitimate gain. These scams and frauds can occur at any point during the life insurance application process, so it’s critical to stay diligent.

According to recent research, insurance fraud costs consumers and businesses over $300 billion annually, with about $75 billion from life insurance fraud. Unfortunately, this fraud impacts consumer costs. The FBI estimates that non-health insurance fraud adds between $400 and $700 to yearly premiums.

Beyond directly impacting premiums, insurance fraud can delay processing legitimate claims, slowing down the distribution of needed funds. That can put even more strain on people during an already emotional and stressful time.

Types of Life Insurance Fraud

Fraudsters and scammers use multiple methods for committing fraud. Understanding the most common types of fraud can help you spot potential red flags.

Agent Fraud

Dishonest insurance agents may misrepresent policies to earn higher commissions, forge application signatures, or pocket premium payments without issuing an actual policy.

High-Pressure Sales Tactics

Agents or scammers may try to rush you into decisions, offer “too good to be true” deals, or create a sense of urgency to get you to sign up for coverage you don’t need or can’t afford.

Fictitious Companies

Scammers may create fake life insurance companies offering low rates and a quick underwriting process. They’ll collect premiums and then disappear, leaving victims without coverage.

Fee Churning

This scheme involves agents switching policyholders between insurance products. Each switch gives them a commission but can leave the policyholder with worse coverage or higher costs.

Misrepresentations That Qualify as Fraud

Consumers also perpetuate scams against insurance companies with purposeful deceptions.

Insurance fraud is a serious crime that can result in fines, coverage denial and even jail time. So, be honest and transparent when applying for and managing coverage.

Falsifying Health History

Providing false or incomplete information about your medical history to get lower premiums or qualify for a policy you aren’t eligible for can lead to denied claims or policy cancellation.

Lowering Lifestyle Risks

Downplaying dangerous hobbies or occupations to lower your premium may also cause the insurance carrier to deny your claim or cancel your policy.

Tips for Avoiding Life Insurance Fraud

It’s not always easy to steer clear of these scams, but understanding the risks, knowing the common frauds, and being proactive can help.

Work with Reputable Life Insurance Carriers

Research a company’s reputation and financial strength ratings with agencies like AM Best or Standard & Poor’s. Read online reviews, and check that the company is licensed to operate in your state. If the insurer offers unrealistic rates and has no clear online presence, it’s probably too good to be true.

Be Wary of Pushy Salespeople and Pressure Tactics

This is especially true if you haven’t contacted the company for a quote. Legitimate life insurance companies usually reach out in response to your inquiries, not out of the blue, via a phone call, text, or email. If someone pressures you to make a quick decision or you feel uncomfortable during the conversation, hang up and call the number on the company’s website to confirm.

Carefully Review Terms and Conditions

Before signing anything, review your policy and make sure you understand the terms, coverage, and costs. Don’t be afraid to ask questions and get clarification, and take your time reading the contract thoroughly. After all, purchasing a policy is an important decision since it helps provide financial security for your loved ones. Life insurance companies also won’t ask for anything outside established payment methods like checks, debit or credit cards, or direct billing.

Ask Probing Questions

Often, your best defense against fraud and scams is gathering information. Here are some key questions to ask that can help ensure you’re working with a legitimate insurer:

• What is your company’s financial strength rating?
• Is your company licensed to sell life insurance in my state?
• What does this policy cover, and what are the exclusions and limitations?
• Where can I find more information about this policy?
• How will I pay my premiums?
• Can you provide quotes and policy offers in writing for my review?
• How long is this offer valid?

Take your time to understand the policy and ask questions. Before purchasing coverage, know what you’re buying and how it aligns with your financial needs and goals. A trustworthy agent and insurance company will answer your questions and address your concerns without pressuring you to decide quickly.

Proactive Steps to Protect Yourself

Beyond avoiding potential scams, you can take steps before and after buying your policy to help safeguard yourself and your beneficiaries.

Document Everything

Securely store your life insurance policy documents, payment receipts, and important communications from the insurer. It can help prevent confusion, and you’ll have key information to address any potential issues later.

Set Up Account Alerts

Many insurance companies have online account access. Set up regular alerts to notify you of any changes, withdrawals, claims, or unusual activity on your policy.

Review Your Policy

Set aside time each year to review your policy. Check whether it still meets your needs and whether your beneficiaries should remain the same.

Collaborate with Other Professionals

Consider working with an estate attorney or financial advisor to help you review potential policies and your financial situation. They can help determine the coverage that best aligns with your needs.

Talk to Your Loved Ones

Make sure your beneficiaries are aware of your policy and understand your wishes. Also, tell them where they can find important documents when the time comes.

Keeping an Eye Out for Fraud

By staying informed, asking the right questions, and taking proactive steps, you can reduce your chances of life insurance fraud. Review the types of coverage available to you before making your decision.

Colonial Penn has specialized in making life insurance simple and accessible by offering it directly to consumers since 1957. Reach out to a representative to learn more or visit colonialpenn.com.

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Colonial Penn has specialized in making life insurance simple and accessible by offering it directly to consumers since 1957. Click here to learn more.