3 Regular Types of Life Insurance Fraud — and How to Stay Savvy

Deceiving a life insurance company could result in your intended beneficiaries not receiving the funds you planned for them.

Insurance fraud remains a prevalent issue, costing the industry approximately $308.6 billion annually, leading to higher rates for honest customers.

The National Association of Insurance Commissioners estimates that life insurance fraud alone amounts to $74.7 billion yearly, with individuals trying to obtain lower premiums or undeserved payouts.

What is life insurance fraud, exactly?

Various types of life insurance fraud exist, and in certain instances, applicants and policyholders may unknowingly engage in fraudulent activities without realizing it.

Lying on your application

When completing a life insurance application, you’ll provide details about your health, smoking habits, lifestyle, hobbies, and income.

The insurer uses this data to assess the risk associated with covering you and determines your premium—the amount you pay to maintain the coverage.

It’s essential to be fully honest and transparent in your responses. Deliberately providing false information or omitting crucial details is considered “material misrepresentation,” a form of fraud.

Forgetting minor details, like your uncle’s high cholesterol, may not qualify as fraud. However, claiming you’ve never smoked when you have respiratory issues due to smoking would be fraudulent.

The insurance company is likely to discover the truth during the underwriting process by checking third-party records to verify the accuracy of the information provided.

These records may include: [list of third-party records].

The information required during the life insurance application process includes:

1. Prescription medication records from the past five to seven years.

2. Driving record showing major traffic violations.

3. A report from MIB (formerly known as the Medical Information Bureau) containing information from past life insurance applications.

4. Credit history check to identify bankruptcies.

Additionally, certain policies may necessitate a medical examination, which reveals details like weight, nicotine use, and other health issues.

Filing a false claim

Life insurance fraud encompasses various deceitful practices, including filing false claims.

Instances of faking one’s death or a loved one’s death to collect the insurance payout have been reported, not only in Hollywood but in real life too.

Another form of fraud occurs when a life insurance beneficiary murders the policyholder to obtain the payout.

If life insurance is acquired shortly before the policyholder’s death, investigators might scrutinize whether the beneficiary sought to profit from the death.

Forging changes to someone else’s life insurance policy typically falls under identity theft or account takeover fraud.

This occurs when one individual impersonates another to access their policies and data, often by family members, friends, caregivers, or those with a relationship with the policyholder.

Older adults and vulnerable individuals are often targeted in these fraudulent activities.

LIMRA’s survey shows an increase in account takeover fraud by related parties, such as family members, and third-party account takeover fraud by unknown fraudsters from 2020 to 2021.

The consequences of life insurance fraud aren’t pretty

The consequences of engaging in life insurance fraud depend on the severity of the case, with criminal charges being the most severe outcome.

If an insurer uncovers that you provided false information on your application, they may reject your application or increase your premium rate.

During the contestability period, which is usually within two years of the policy’s inception, insurers can investigate claims more thoroughly if the policyholder passes away.

If crucial health details were omitted, even if the cause of death is unrelated, the insurer retains the right to delay, deny, or reduce the payout to the beneficiaries.

Avoiding and reporting life insurance fraud

If you suspect you’ve fallen victim to fraud, reach out to the National Insurance Crime Bureau at 800-TEL-NICB or submit a report on NICB.org.

In addition, many states have their own insurance fraud bureaus. If you suspect identity theft, it’s advisable to contact your bank.

To ensure you are not inadvertently engaging in fraud:

1. Provide truthful information in your life insurance application to secure the payout for your loved ones.

2. Seek assistance from licensed agents or brokers to navigate the application process effectively.

3. Avoid allowing others to sign up for your insurer’s online portal on your behalf. Opt for security features like multifactor authentication.

4. Regularly check and update your beneficiaries if you experience any life changes, such as getting married.

Get Quotes 

Leave a Comment

error: Content is protected !!