Fraud in the life insurance industry is detrimental to both life insurance providers and their clients. Both sides have committed life insurance fraud and will do so again, especially given that, regrettably, most data indicators indicate that fraud is on the rise.
study conducted by the nonprofit According to the Coalition Against Insurance Fraud, life insurance fraud by all parties results in annual expenses of $1650 for the average household and a 25% rise in life insurance premiums.
The most frequent kind of insurance fraud committed by life insurers is “churning” by their representatives. Here, the agent tries to replace your current life insurance policy with a new one that is funded by the “juice” (cash value) in your current policy. Agents do this to increase their own commissions without having to look for new clients. Churning obviously deducts from a customer’s cash value and can lead to higher premiums for them.
But agents also engage in a different type of insurance fraud known as “windowing”. When an agent can’t get a client’s or applicant’s signature on a required document but already has that signature somewhere else, they’ll hold up a signed document behind the unsigned one, press it up against a window to let light through, and then use a pen to trace over the signature to make it look like the client’s or applicant’s.
The public is significantly more responsible for insurance fraud than insurance firms are, despite the fact that when well-known insurance companies have their agents commit criminal deeds, it garners significant media attention. All claims regarding life insurance death benefit payouts are subject to inspection because, as is obvious, creating false claims is what they do most frequently.
But another type of insurance fraud that is frequently committed by individuals is inaccurately reporting background or financial income information. They may feel ashamed of their income or medical history, or they may be aware that if they are honest, their coverage may be reduced or their premiums will increase significantly. Depending on the situation and the policy, a life insurance company has the right to refuse to pay the claim or to pay a portion of the death benefit if it discovers that the applicant lied on their application.
However, since they lack the excellent investigative resources that life insurance firms do, life insurance customers can take certain precautions to safeguard themselves against insurance fraud.
Always keep in mind that if something seems too good to be true when it comes to life insurance, it probably is. There are no free meals.
Never ignore any warnings from your life insurance company and always save all of your paperwork, including receipts for every dollar you send your agent.
Despite the fact that some plans may eventually become self-funding, life insurance is never free and it is not a pension plan.
Never give in to pressure, never get coverage you believe to be unnecessary, and never use borrowed money to pay for life insurance.
The main purpose of life insurance, despite the fact that it can be included in a portfolio of investments, is to provide protection from the unforeseeable, and the majority of individuals don’t require it as they become older. It is meant to be short-lived.
