Life insurance fraud is a black eye for both life insurance companies and life insurance customers. Both parties have been guilty of life insurance fraud and will be again – especially as fraud unfortunately appears to be on the rise by most statistical standards.
Research by the nonprofit organization The Coalition Against Insurance Fraud concludes that life insurance fraud, committed by all parties, costs an average household $1,650 a year and increases life insurance premiums by 25%.
Life insurers are most often guilty of insurance fraud in the form of “churning” their agents. Here the agent is attempting to cancel your existing life insurance policy and replace it with a new policy that will be paid for by the “juice” or cash value of your existing policy. Agents do this to earn more commissions for themselves without having to look for new business opportunities. Churning can result in increased rewards for a customer and clearly costs them their cash value.
However, another insurance fraud practiced by agents is known as “windowing”. This is the case where the agent, unable to obtain a client’s or applicant’s signature on a required document but already has that signature elsewhere, holds a signed document behind the unsigned document, presses it against a window, to allowing the light to shine through, and tracing traces across the signature with a ballpoint pen to forge the signature of the client or applicant.
When big-name insurance companies let their agents do bad things, it makes big headlines, but the fact of the matter is that the public is much more guilty of insurance fraud than the companies. And, of course, they are the most likely to make false claims, which is why all life insurance payout claims are investigated.
However, misrepresenting background or financial income information is another form of insurance fraud in which consumers are often involved. They might be embarrassed by their medical history or their income, or they might realize that if they tell the truth, their coverage will be reduced or their premiums will be very high. If a life insurance company finds out that someone lied about their claim, they have the right not to pay the claim or not to 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.
Save all of your life insurance records, including receipts for every penny you give your agent, and never ignore notifications from your life insurance company.
Life insurance is never free and it’s not a retirement plan, although certain policies may actually become self-financing – but they never start out that way.
Never buy coverage you feel is unnecessary, never allow yourself to be pressured, and never borrow credit to fund life insurance.
Although it can be part of an investment portfolio, life insurance’s most important role is to protect against the unforeseen – and most people will no longer need life insurance in their later years. It’s supposed to be temporary.
