Insurance fraud is a problem that keeps coming up, and we all pay for it. The Coalition Against Insurance Fraud estimates that it costs insurers $308.6 billion yearly, with customers footing the bill to make the difference.
The National Association of Insurance Commissioners estimates annual life insurance fraud totals $74.7 billion.
What Precisely is Life Insurance Fraud?
There are several sorts of life insurance fraud. In some situations, applicants and policyholders are unaware that they are doing it.
You Lied on Your Application
When applying for life insurance, you should expect to answer questions about your health, smoking habits, lifestyle, interests, and occupation. The insurer uses this data to calculate your premium, the monthly fee you’ll pay to maintain your insurance coverage, based on how “risky” you are to insure.
The idea is to be as open and honest as possible. If you willfully falsify or omit information on your application, you are committing “material misrepresentation,” a type of fraud. Now, forgetting your uncle had high cholesterol isn’t always considered dishonesty. However, it qualifies if you claim you’ve never smoked cigarettes but have respiratory problems due to smoking.
The insurer will almost certainly find out as well. The finest life insurance firms use third-party records during the underwriting process to guarantee that what you’re stating is true.
- Medication prescription records from the past five to seven years.
- A driving record that includes severe traffic offenses.
- MIB report, formerly known as the Medical Information Bureau, contains information from previous life insurance applications.
- Examine your credit report for bankruptcy filings.
Some policies include a medical checkup, exposure to weight, nicotine usage, and other health concerns.
Filing a Bogus Claim
This isn’t just limited to Hollywood; it is a known crime for someone to fake their own or a loved one’s death to collect on a life insurance policy.
Claims fraud is also committed when a beneficiary kills the policyholder to get the payout. Authorities may question a beneficiary’s motives if they learn that life insurance was purchased shortly before the policyholder’s death, as the National Insurance Crime Bureau reported.
Making Unauthorized Alterations to Someone Else’s Policies
Russell Anderson, a certified fraud examiner and Head of Financial Crimes Services at LIMRA (a trade organization for the life insurance market), defines forgeries as either identity theft or account takeover fraud.
He said, “In this scenario, an imposter would masquerade as another person to acquire access to their [life insurance policies]. The objective is to take some of their information, but it is unlikely they will gain access to their accounts and steal their money.”
According to LIMRA, the primary culprits are family members, friends, caretakers, and anyone with a relationship with the insured.
A third party can alter the beneficiaries or ownership of insurance by posing as the policy’s original owner. In 2017, for example, Pennsylvania authorities penalized a funeral director for faking a client’s signature on paperwork listing his business as the beneficiary of her policy.
The elderly and vulnerable seniors are prime targets. According to a recent survey, 43% of LIMRA member companies expect a rise in account takeover fraud from linked parties, such as family members, between 2020 and 2021. Approximately 34% of insurers said they had seen a surge in fraudulent account takeovers involving a third party and an unknown fraudster.
When it Comes to Life Insurance, the Consequences of Fraud Are Far from Pleasant
The consequences of perpetrating life insurance fraud vary depending on the severity of the case, with criminal charges being the most severe. If insurers discover you lied on your application, they may reject it or hike your rate.
Insurance companies have the right to withhold payment if you pass away within the contestability period, generally the first two years after the policy’s effective date. Suppose you fail to disclose material health information. In that case, the insurance company can deny or reduce the payout to your heirs even if you pass away from unrelated causes.
Life Insurance Fraud Prevention and Reporting
Call the National Insurance Crime Bureau at 800-TEL-NICB or register a report online at NIC.org if you feel you are the victim of insurance fraud. Most states also have an insurance fraud bureau. Anderson advises notifying your bank if you feel your identity has been stolen.
To ensure that you are not being deceptive, whether intentionally or unintentionally:
- On your application for life insurance, you need to be honest. It is the smartest way to ensure your loved ones receive compensation.
- Use a licensed agent or broker. These experts can guide you through the application process.
- Never allow anyone else to join your insurer’s web portal on your behalf. Many insurers provide clients with the ability to control their coverage online. Anderson emphasizes the importance of enabling security tools such as multifactor authentication.
- Examine your beneficiaries. If you’ve had a life change, such as getting married, you should update your policy.
Contact Information:
Email: [email protected]
Phone: 8668727470
Bio:
Mark Zimmerman, Sr currently is the Managing Member of Aurifex Financial Group, LLC. Aurifex Financials mission is to help clients realize their vision of living life on their own terms by providing credit repair, financial counseling, insurance solutions, and money lending services. This is accomplished by using a holistic approach. After hanging up his uniform after 22 years of service in the military, Mark still had a desire to help others, so he created Aurifex Financial.
As part of Accredited Financial Counselor (AFC) credentials, Mark had to obtain and document over 1000 hours of helping others which was accomplished by helping hundreds through a local non-profit. As an independent Insurance Agency, Mark is licensed in property and casualty, home, business, health, Medicare, life, and annuity products.
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