Skip to main content

Fraud is a persistent problem for the insurance industry, and it’s a problem we all pay for. The Coalition Against Insurance Fraud estimates that it costs insurers $308.6 billion a year across the industry, leaving customers to recoup losses with higher rates.

People commit $74.7 billion in life insurance fraud a year, according to the National Association of Insurance Commissioners — often to get a lower premium or receive money they don’t have not right.

What exactly is life insurance fraud?

There are a few types of life insurance fraud, and in some cases applicants and policyholders do not know they are guilty of committing it.

Lying on your app

When you fill out a life insurance application, you answer questions about your health, smoking status, lifestyle, hobbies and income. The insurer uses this information to calculate the “risk” you run to cover and to set your premium, which is the amount you will pay to keep your cover active.

The goal is to be as transparent as possible. If you knowingly lie or omit information about your application, this is a form of fraud known as “material misrepresentation”. Now, forgetting that your uncle had high cholesterol is not necessarily considered cheating. But if you say you’ve never smoked cigarettes and you have respiratory problems from smoking, you have.

The insurer will probably know this too. During the subscription process, the best life insurance companies pull third-party recordings to make sure what you say is true. These may include:

  • Prescription Drug Records for the past five to seven years.
  • Driving record listing the main traffic offences.
  • MIB reportformerly known as the Medical Information Bureau, which contains information on past life insurance claims.
  • credit history to verify bankruptcies.

Some policies also require a medical exam, which will reveal your weight, nicotine intake, and other health issues.

make a false statement

It’s not just happening in Hollywood: there have been cases of people faking their own death or faking the death of a loved one to collect life insurance payouts.

Another type of claims fraud occurs when a life insurance beneficiary murders a policyholder to obtain payment. If life insurance is purchased shortly before the policyholder’s death, investigators could determine whether the beneficiary sought to profit from the death, according to the National Insurance Crime Bureau, or NICB.

Make changes to someone else’s policy

Tampering falls under identity theft or account takeover fraud, says Russell Anderson, certified fraud examiner and head of financial crime services for LIMRA, a life insurance trading group.

“This is where an individual impersonates another individual with the intention of gaining access to their [life insurance policies] to steal some of their data, but more than likely not to access and steal the cash value of those accounts,” Anderson says.

Family members, friends, caregivers and people who have a relationship with the insured tend to be the main culprits, according to LIMRA.

There have also been cases where a third party claimed to be the policyholder for change beneficiaries or font ownership without consent. For example, in 2017, Pennsylvania regulators fined a funeral director convicted of forging a client’s signature on a document naming his company as the beneficiary of his policy.

The elderly and vulnerable adults are key targets. In a recent survey, 43% of LIMRA member companies reported an increase in account takeover fraud by related parties, such as family members, from 2020 to 2021. In the same survey, approximately 34 % of insurers said they have seen an increase in third-party fraud. account takeover fraud by unknown fraudsters.

The Consequences of Life Insurance Fraud Aren’t Pretty

The repercussions of life insurance fraud vary depending on the seriousness of the case, with criminal charges at the higher end of the spectrum.

Insurers can reject your claim or raise your rate if they find you lied on your claim.

If you die during the contestability period, or within two years of the policy taking effect, insurers can delay the claim while they investigate. And they have the right to withhold or reduce payment to your beneficiaries if you’ve omitted important health details, even if you died for unrelated reasons.

Avoiding and Reporting Life Insurance Fraud

If you believe you have been the victim of fraud, contact the National Insurance Crime Bureau at 800-TEL-NICB or file a report at NICB.org.

Most states also have an insurance fraud office, and Anderson recommends contacting your bank if you believe your identity has been stolen.

To ensure that you are not fraudulent, whether accidentally or otherwise:

  • Be honest in your application for life insurance. This is the best way to ensure your loved ones receive payment.
  • Work with a licensed agent or broker. These professionals can help you navigate the application process.
  • Don’t let anyone else sign up for your insurer’s online portal on your behalf. Many insurers allow policyholders to manage their coverage online. Enabling security features like multi-factor authentication is important, Anderson says.
  • Check your beneficiaries. Update them if you’ve been through a life change, like getting married.