Insurance fraud is broken down into two major categories, property/casualty and life/health. This article will discuss life/health insurance fraud, which includes the term life insurance sector. Non-profit sites like the Coalition Against Insurance Fraud (CAIF) report that life/disability insurance fraud costs approximately $1.5 billion a year. The worst part is that this cost is passed along to consumers, most of whom would never consider committing insurance fraud themselves. Instead, they find themselves paying up to hundreds more annually on their premiums. Money paid by insurance companies for fraudulent insurance claims add to the companies’ annual loss, a statistic that is always used to establish future rates.

Insurance fraud is either internal (fraud within the insurance industry itself) or external (fraudulent activity by applicants, policy-holders or third party claimants).

Internal Fraud.
Internal fraud often includes the creation of a fictitious company to generate insurance premiums and issue fraudulent policies. This is usually performed by professional con-artists, but there are some red flags to protect consumers from being the victim of life insurance fraud:

• Follow your instincts; if the deal sounds too good to be true, it probably is. Do not allow yourself to feel pressured by an agent or company. If an agent does not directly answer your questions or seems particularly evasive, go elsewhere.
• Be wary of any life insurance plan that promises “vanishing” or “severely reducing” premiums later in the life of the policy.
• Don’t sign any applications that have blank areas throughout the text. The fraudulent agent or company may later add in things that you did not agree to with your signature. Always get copies of what you signed.
• Save everything that has to do with the policy that you sign, including statements, records of correspondence, check stubs, etc.
• Don’t buy coverage with terms that you don’t understand, or feel pressured into buying more than you need.
• Never pay premiums in cash; always pay by check or money order. And always ask for a receipt for any payments.
• Never buy insurance from an unlicensed agent or company. You can verify this information with your state’s Department of Insurance.

External Fraud.
For insurance companies, there are sets of indicators that arouse suspicion that a consumer or beneficiary is trying to deceive the company. Often just one of these indicators would mean little to a company; but evidence of several can be a severe red flag. If fraud is proven, the claim will be denied and the crime will be reported to the authorities. Remember, insurance fraud is a felony, and comes with strict penalties. For example, in California, insurance fraud is punishable by up to five years in prison and a $50,000 fine.

Indicators of external life insurance fraud include:

• The death occurred during the policy’s contestable period, or shortly after the policy’s inception.
• The claimant had several small policies in force (often with various companies, and/or of small enough amounts that no physical exam was required).
• Evidence of financial distress directly prior to death (indicators include depletion/closing of accounts, etc.)
• Recent changes in coverage, usually in increments that don’t require physical exams, and/or recent changes in beneficiaries.
• Inconsistencies, mistakes, and/or blatant lies found on application.
  Insured was involved in an activity not considered customary for the person when he or she died.
• The body of said insured is never found, or identification is incomplete (due to condition of deceased).
• The coverage amount (total if insured has several policies) is not commensurate with insured’s income and/or estimated economic worth.
• The deceased was not well known by relatives and/or lived alone.

Remember, not only is life insurance fraud a crime, but it also drives up the costs for all consumers!

For more information on insurance fraud, visit www.insurancefraud.org. If you have reason to suspect insurance fraud in any form, please call the National Insurance Crime Bureau at 800-TEL-NICB. The National Association of Insurance (NAIC) also has an antifraud task force; information about this can be found at www.naic.org.

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