Life insurance fraud is something that many are aware of, but that few understand how to prevent. As much as we would like to think it won’t happen to us, life insurance fraud already does affect everyone; in the form of higher premiums. Billions of dollars are lost to life insurance fraud every year.
The definition of this type of fraud is any deception that is intentional, whether it is perpetrated by someone applying for life insurance or a person who sells it to others.
Simple to Elaborate Schemes
Types of life insurance fraud can range from a lie on an insurance application to elaborate schemes which involve meticulous planning and daring stunts. Whether it takes only minutes or years to prepare, insurance fraud occurs on a daily basis.
Lying On the Application
Most commonly, insurance fraud occurs during the application process by someone looking to get their life insurance at a lower premium. Likely the most popular lie told on a life insurance application is that one is not a smoker, and/or they are otherwise healthy.
What many who lie on their applications don’t realize is that there are many methods that insurance companies can use to discover the real truth about what was said on an application. Should false information be discovered, the life insurance application can be voided completely. Not only that, but the applicant can be denied future coverage as a result.
Twisting and Churning
Although they may sound more like popular dance moves than life insurance schemes, ‘twisting’ and ‘churning’ are two practices commonly used by unscrupulous life insurance agents to defraud customers.
In twisting, a customer’s net worth is falsely inflated by the agent in order to generate more commissions. Common targets for this practice are seniors who have experienced a loss of savings during the economic downturn. Agents approach these individuals with the promise of restoring what they’ve lost.
Churning involves the unnecessary replacement of existing life insurance with a new policy. The goal of churning is to realize higher commissions in the policy’s first year. One example occurred in California, where seniors’ existing annuity contracts were replaced with the promise of an immediate bonus that was never delivered.
Reporting Life Insurance Fraud
Before any type of life insurance fraud can be reported, it’s important to understand that a lot of evidence will need to be submitted with your claim in order for it to be supported. This is because life insurance fraud encompasses a wide range of activities.
Proving That Fraud Has Occurred
The likelihood of fraud can be determined by taking a look at how much money a life insurance policy promises to pay upon the death of the policy owner. If you are reporting fraud, a breakdown of the benefits received, in addition to any funeral benefits should be included in your report.
Looking at a policy holder’s health can be an accurate clue that fraud has taken place. If the policy holder has a disability, is in their later years or is in a medically-helpless state, such as a coma, they are vulnerable to fraud.
The character of the individual in question will need to be proven in cases of life insurance fraud. You can get a character profile by talking with their coworkers, friends or family. You can also investigate whether the individual has attempted fraud in other insurance branches like health or vehicle.
There are many ways in which information illustrating alleged life insurance fraud can be communicated quickly. One way is to fill out forms online, as many of these types of forms allow for digital copies of documents to be attached.
Being able to send information quickly can mean that you are contacted about your case in a much shorter time frame, which can mean that damage to the alleged victim is drastically minimized.
While the process of first recognizing life insurance fraud and then reporting it can be a stressful one, it can be comforting to know that the person in question, if involved with fraud before, will no longer have the opportunity to prey on another’s friend or family member.
Guest author Adam Foley is well-versed on the topic of life insurance, including helping consumers understand how to spot fraud. He is a frequent contributor at The State Insurance Guide.