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Life insurance fraud (with examples)

It’s a classic trope of Hollywood movies: an individual takes out an expensive life insurance policy, fakes his death, and starts a new life with the payout that he received.  Or the case where a person convinces someone to name him as the beneficiary then hires a killer to ensure the policy pays out early.

While these are both life insurance fraud examples of claims, they’re both pretty extreme examples of it.  Insurance fraud can take on many guises, many of which are a lot subtler than these examples. The best way to protect yourself against fraud is to be aware of what types of scams exist. Here are some common insurance scams, and how to defend yourself against them.

Life Insurance Fraud Example #1: Forgery

There are a few ways that life insurance forgery can occur, all of which can have serious consequences. Life insurance forgery involves altering an individual’s policy without their awareness.

For instance, if an individual were to alter another persons’ policy, changing the name of the beneficiary or the policyholder, they would be committing fraud.

But only a life insurance policyholder can change the beneficiary or the details about it. Sometimes, it might even be an insurance broker who attempts to make changes to your policy without your awareness.

Take away

Be sure always to maintain copies of the original policy you agreed to, and review any changes made to your life insurance policy before signing it.

Life Insurance Fraud Example #2: Phony Policies

This type of life insurance fraud involves individuals posing as insurance agents and selling policies that don’t exist.  You may receive an unsolicited phone call from an individual, who proceeds to try and sell you an insurance policy.

Often, these schemes will involve the perpetrator requesting cash or a personal cheque as payment for the policy.

A variation on this type of fraud involves a legitimate insurance agent attempting to “upsell” you on your policy. The agent could be forceful and cite benefits to paying a higher premium for a policy that you don’t require.  By selling you a more expensive policy, the agent will receive a higher commission, while all you’ll be doing is spending more of your hard earned money.

Take Away

It’s important to remember, to protect yourself against this type of fraud, that only licensed insurance agents can sell policies.  If the individual you are dealing with fails to provide their license number, or the one provided isn’t registered with the Insurance Broker Association Of Canada, chances are you’re dealing with a scam artist.

Remember: you can always say no to changing your policy, and you should never feel pressured into making a decision.

And keep in mind that it’s advisable only to deal with reputable life insurance providers.  Additionally, you can protect yourself by shopping around for life insurance quotes. By doing this, you’ll be able to see what standard insurance policies offer and be better informed if the person you are dealing with is legitimate or not.

Life Insurance Fraud Example #3: Application Fraud or Material Misrepresentation

Lying on your insurance application is a serious offence. Knowingly misrepresenting yourself on an insurance application can result in severe penalties, and can result in denial of an application or higher insurance rates if discovered.

If you lie about your medical history, or intentionally misinform a life insurance provider, the consequences can have serious implications for both you and your loved ones.  While misrepresentation could result in your having to pay higher rates, or it becoming more difficult to find a life insurance provider, it could also result in your insurance policy being cancelled altogether.  If this is the case, your family could be left with a heavy financial burden, and if your family is covered under the same life insurance policy, they could find their insurance policies cancelled as well.

If, for instance, you happen to have forgotten about a medical procedure at the time of your application, or realize that your scale misreported your weight, it’s essential that you let your insurance provider know as soon as possible.

Take Away

We all make mistakes, and adjustments can be made to policies easily.  But if you knowingly omit information – for instance, lying about pre-existing conditions or falsifying medical records – you could face sharp penalties.

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How To Protect Yourself Against Life Insurance Fraud

While nothing is foolproof, there are a few steps you can take to protect yourself against life insurance fraud.

Maintain an original copy: One of the easiest ways to ensure there aren’t changes made to your policy without your authorization is to ensure that you haven’t left any blank spaces on your policy and that you maintain a copy of the original policy that you sign.

If any changes are made after the fact without your authorization, you will have a record of what terms you agreed to.

Trust, but verify: It’s also important that you only deal with a licensed life insurance provider. If you have any doubts, request the broker’s license number, and verify this with the licensing office.

Read everything: And of course, be sure to read over your full policy before signing anything. You don’t want there to be any surprises or hidden details that could have consequences for you and your family.

When applying for life insurance, it’s important to be honest and open, disclosing any relevant information at the time of application.  Failure to do so can have serious consequences for both yourself and your family.  When comparing term life insurance vs. whole life insurance, be sure to compare what different companies offer, and only take out a policy with a reputable company.

Remember, you should never feel pressured into making a decision, and all life insurance providers need to be licensed.