7 Most Common Life Insurance Scams
(And How to Protect Yourself)
You have probably heard of some extreme life insurance scams on the news. Articles and late-night reports of people taking out multiple life insurance policies on family members and trying to harm them for it. Or people faking their own death in order to get a cut of their beneficiary’s payout. While all of these instances of fraud definitely occur, most life insurance scams tend to be more subtle. They target unsuspecting seniors or grieving family members in order to steal their hard-earned money. You may wonder to yourself, “Is whole life insurance a scam?” While the answer is a resounding no, there are people who would try to scam you under the guise of life insurance. Luckily, there are ways you can tell if someone is trying to scam you and ways to protect yourself and your loved ones
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What is a Life Insurance Scam?
A life insurance scam or fraud occurs when there is deceitfulness or malintent with an insured, policyholder, or beneficiary. It could also be when one of those actors tries to falsify information or intentionally hold information back. Life insurance scams cost the average family up to $700 annually in increased monthly premium amounts.
It should be noted that most life insurance agencies, brokers, and companies are not scams. They offer a service that guarantees your family members and loved ones a lump sum of money upon your passing. Whole life insurance is remarkably useful for paying off medical and funeral expenses and any other debts that can be left behind.
Most Common Life Insurance Scams
1.) Premium and Coverage Fraud
One type of life insurance scam comes from an agent pocketing your premium instead of having you pay for your insurance coverage. Typically how the rouse will go is that they will call you or email you saying they are from a reputable or self-owned insurance brokerage firm. They will then ask you a series of questions mimicking a health application. They call you to try to sell you a fake life insurance policy and then take your money each month in “premiums”. They then pocket those premiums for thesemlves. Suffice it to say, if you think you are getting a policy and pass away, your beneficiaries will be left with nothing.
2.) Identity Theft
The term identity theft was coined in 1964 when most of the cases were over-the-phone scammers promising prizes to unsuspecting victims who would happily give up their social security numbers to “verify themselves” as the winner of these false prizes. In the digital age, scammers are far more clever and inventive with their scams. One of these life insurance scams is where strangers will call regarding a past-due balance on your policy. The scammer will come off as very real, have accurate information, and even be pleasant to work with as you hand them all your personal information. They will then take your personal information and use it to get a car, take out loans, and ruin your credit in general.
3.) Fake Insurance Agents and Websites
4.) Forgery
Another popular life insurance scam is a shady agent using your signature to make changes to or add to your policy without you knowing. Now, most insurance producers and agents are good and ethical people who take their roles seriously. However, bad actors may alter your policy where they make themselves the beneficiary or change the type of policy you have to one that earns them a bigger commission (and is more expensive for you). They may change your term policy into a whole life insurance policy which will cost you more money. They may all also add insurance riders to your policy that you do not need for a commission bonus. Forgery life insurance scams are not just reserved for agents. A stranger claiming to be you or a loved one could try to sign themselves onto your policy without your knowledge.
5.) Beneficiaries Scam
Phishing is a type of scam where a stranger pretends to be from a reputable source either in email or other messaging platforms. The intent of these individuals is to get you to give them personal information like account passwords, credit card numbers, and other information that can be used to take money from you or get into your personal accounts.
Now that you know what phishing is, you know this is how beneficiary life insurance scams work. Scammers prey upon people who have recently lost a loved one and will contact them saying they are entitled to death benefits from a phony policy. Scammers will say that in order to get this death benefit, you have to pay an outstanding balance on a premium. The amounts may be staggering and they may promise you millions of dollars if “you only pay the $1,000 premium deficit”. This amount is enticing and has landed many people hundreds of dollars or more if they provide sensitive information to the scammer.
6.) Insurance Churning & Twisting
What is churning and twisting insurance? Churning or twisting are types of life insurance scams that are very similar but have one key difference. Churning insurance is when a producer or agent replaces a client’s existing coverage with a policy that has similar (or worse) benefits from the same carrier. Twisting insurance is similar except the replacement policy will be with a different carrier.
Example of Churning: You have ABC insurance with the level policy plan. The agent tries to get you to switch to ABC insurance’s moderated policy plan. This would result in a decrease in coverage with the same carrier for you and the agent would get a commission for making a sale.
Example of Twisting: You have DEF insurance with the level policy plan. The agent tries to get you to switch to ABC insurance’s level or moderate policy plan. This could result in a higher premium for you with less coverage but a commission bonus for the agent.
While most agents are ethical and devoted to their careers, you may get some bad apples that try to call you to get you to change your policy solely for a commission bump. Since these types of practices are rarely in your best interest as the client, there are state-by-state regulations to discourage agents from doing this. However, it is not completely illegal because then you would have no way to change your policy if a genuinely better rate or cash value insurance option comes along.
7.) Insurance Application Fraud
One of the most common life insurance scams actually comes from the buyer of life insurance. Application fraud, also known as policy misrepresentation, is when someone gives false information to the life insurance agent or actively conceals information from them. A person would do this in order to get access to better life insurance coverages or lower premium rates. Of course, sometimes folks make mistakes and may not know they had a pre existing condition until the medical exam comes up or their weight is off by a couple of pounds.
These small mistakes should not affect whether or not you are entitled to life insurance coverage. Purposefully providing misleading or false information, however, can result in denial or termination of coverage as well as the Medical Information Bureau being informed that you tried to falsify information on your application. This could prevent you from getting life insurance coverage in the future and, if considered a life insurance scam, may get you into legal trouble.
What To Do if You Are a Victim of a Life Insurance Scam
If you find yourself the victim of a life insurance scam, you have options to take action. If you bought fraudulent insurance from a fake agent or company, report it immediately. Each state has Insurance Fraud Bureaus where you can report life insurance scams. The Coalition Against Insurance Fraud provides you which each state agency that can assist you in filing a claim. Next, you may have to file a police report with the authorities in order for them to investigate the matter. The report should go to your state or city’s Financial and Cyber Crimes unit. Try to provide them with as much detailed information as possible and any phone numbers, emails, or websites that the scammer used to get your information.
If you bought insurance from a licensed agent or facility and suspect you are a victim of churning or twisting you may be able to cancel your policy. All life insurance policies have a period of time where cancellation comes at no penalty to you. If you cancel within that period, you are entitled to a full refund. If that period of time has already expired and you feel like you have been a victim of a life insurance scam, contact your insurance company or brokerage firm where you bought insurance. You may be able to file a complaint with them and have an internal investigation done.
How to Protect Yourself From Life Insurance Scams
There are a number of ways you can protect yourself from scammers who are trying to take advantage of you. The following tips and advice can help you to be wary of life insurance scams and prevent yourself from becoming a victim.
Fill Out Applications Carefully
When you apply for a new life insurance policy, you will be asked to submit an application that is several pages long. The applications are looking to see what type of health conditions you may have or what your credit will look like. Review all questions carefully, answer honestly, and take your time filling out the application. Rushing through the application could lead you to write down incorrect information. While minor mistakes may be overlooked, you do not want to make an error that could get your coverage denied.
Stay Informed
Keeping up to date with how scammers operate can be a great way to protect yourself from becoming their next victim. Fraudsters are always evolving and figuring out new means to scam vulnerable people of out their money. Here are key pieces of information to remember when it comes to life insurance scams:
- Websites for life insurance will never ask you for your social security information or credit card information off the bat. The is reserved for the application. Something like this could be indicative of a life insurance scam.
- Agents can verify themselves by telling you their license number or their National Producer Number (NPN). If they refused or are reluctant to give this information then take that as a red flag that this might be a scammer.
- Agents will never inform you of a missed payment and try to have you correct that with a phone call. Call the insurance company directly if you suspect you may have missed a payment.
- If your loved one with a life insurance policy has passed, the insurance company will have to be informed first in order to contact beneficiaries. Legitimate companies will not contact you without notice but someone pulling a life insurance scam might.
- Companies will also not tell you that you have to pay a premium in order to receive death benefits. Death benefits can only be received if the policyholder made all payments up until their time of passing.
Get a Copy of your Policy
Be sure to get a copy of and read through the insurance policy that you are buying. Review the terms of cancellation and if there is a free period in which you can get a full refund if you are unhappy with the services you have received. Ask questions about anything you are unsure about or do not understand. A reputable company will be happy to help you and clear up any confusion that you may have. People running life insurance scams will not provide you with any details, or paperwork, nor would they want to answer any questions you may have.
Work with Reputable and Licensed Insurance Agents
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