life insurance fraud

Life insurance fraud is a black eye for both life insurance companies and life insurance customers. Both sides have been guilty of life insurance fraud and will do so again – especially since, sadly, fraud appears to be on the rise by most statistical measures.

Research from the nonprofit organization The Coalition Against Insurance Fraud concludes that life insurance fraud committed by all parties costs an average household $1650 per year and increases life insurance premiums by 25%.

Life insurers most often engage in insurance fraud in the form of “churning” their agents. This is where the agent tries to cancel your existing life insurance policy and replace it with a new one paid for by the “juice,” or cash value, in your existing policy. Agents do this to earn more commissions for themselves without having to look for new prospects for business. Churning can lead to higher premiums for a customer and clearly costs them out of cash value.

However, another insurance fraud practiced by agents is called “windowing”. This is where the agent, unable to get a client’s or applicant’s signature on a necessary document but already has that signature elsewhere, holds a signed document behind the unsigned document, presses it against a window to shine through light, and trace over the signature with a pen to forge the signature of the client or applicant.

When big insurance companies make their agents do bad things, it makes big headlines, but the fact is that the public is far more guilty of insurance fraud than companies. And of course making false claims is what they do the most, which is why all life insurance payout claims are subject to scrutiny.

But falsely disclosing background or financial income information is another form of insurance fraud that consumers often face. They may be ashamed of their medical history or income, or they may realize that if they tell the truth, their coverage will be reduced or their premiums will be very high. If a life insurance company discovers that someone lied about their application, they have the right to withhold the claim or not pay the full death benefit, depending on the circumstances and the policy.

But there are things life insurance buyers can do to protect themselves from insurance fraud because they don’t have the great research resources that life insurance companies have.

Remember that when it comes to life insurance, if it sounds too good to be true, it probably is. There is no free lunch.

See also  Car insurance, cell phone and car accident rates

Keep all your life insurance papers, including receipts for every cent you give your agent, and never ignore reports from your life insurance company.

Life insurance is never free and it’s not a retirement plan, although certain policies can indeed become self-financing – but they never start out that way.

Never buy coverage that you don’t think is necessary, never be pressured, and never borrow to fund life insurance.

While it can be part of an investment portfolio, the main role of life insurance is protection against the unforeseen — and most people don’t need life insurance in their later years. It is intended to be temporary.