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 be again especially since, sadly, fraud appears to be on the rise by most statistical measures.
Research by the nonprofit Coalition Against Insurance Fraud concludes that life insurance fraud perpetrated by all parties costs the average family $1,655 per year and increases life insurance premiums by 26%.
Life insurers are most often guilty of insurance fraud in the form of their agents doing “spoofing”. This is where the agent asks to cancel your existing life insurance policy and replace it with a new policy that is paid out of the “liquid،” or cash value, on your existing policy.
Agents do this to earn more commissions for themselves without having to solicit new business prospects. Violation can result in increased premiums for a customer and clearly costs them more than their cash value.
Another insurance fraud practiced by agents, however, is called “windowing.” Here, unable to obtain a client or applicant’s signature on a necessary document، but already having that signature elsewhere, the agent holds a signed document after the unsigned document, presses it into a window to make for the light to shine and trace over the pen signature to forge the customer’s or applicant’s signature.
When big insurance companies have their agents do bad things, it makes big headlines, but the fact is that the public is far more to blame for insurance fraud than the companies. And of course making false claims is what they do most, which is why all life insurance death benefit claims are subject to investigation.
But misrepresenting financial income information is another form of insurance fraud that consumers often engage in. They may be embarrassed by 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 too high.
If a life insurance company discovers that someone has lied on their application, they have the right to not pay 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، since they don’t have the vast investigative resources that life insurance companies have.
Remember، when it comes to life insurance, if it sounds too good to be true، it probably is. There is no free lunch.
Keep all your life insurance paperwork، including receipts for every penny you give your agent، and never ignore any notice from your life insurance company.
Life insurance is never free and it is not a retirement plan، although certain policies can indeed become self-funding – but they never start out that way.
Never buy any coverage you think you don’t need، never allow yourself to be pressured, and never borrow to finance life insurance.
Although it can be part of an investment portfolio، the number one role of life insurance is to protect against the unexpected and most people don’t need life insurance in their later years. It is intended to be temporary.