Finding Fraud: How to Spot Insurance Scams

Deciding when or where you’re going to invest in insurance is a very important decision in life.
It is a tremendous financial turning point where you’re making decisions in entrusting your hard-earned savings through insurance providers that can accommodate your needs. This type of decision is especially difficult to make when struggles such as old age, sickness, or injuries are more likely to occur. Financially investing in life insurance providers is important as you can only do so much in preparing for the future since diseases or accidents can never really be forecasted.

Unfortunately, life insurance as a business entails opportunities for some delinquents who commit insurance fraud. According to,

Insurance fraud from the issuer (seller) includes selling policies from non-existent companies, failing to submit premiums and churning policies to create more commissions. Buyer fraud includes exaggerated claims, falsified medical history, post-dated policies, viatical fraud, faked death or kidnapping, murder and much more.”

The specifics of life insurance investments are also complex. With many providers such as State Farm Group, facilitating for different plans for definite needs ranges from handling insurance on cancers, obesity, mental health and even issues on divorce. Such complexities can come by, especially when scammers begin to set their sights on a big fish.

Types of Fraud

Insurance fraud comes in two main categories: seller fraud and buyer fraud. Seller fraud occurs when the seller of a policy hijacks the usual process in a way that maximizes his or her profit. Buyer Fraud occurs when the buyer bends the process to obtain more coverage, or claim more cash, than he or she is rightly entitled to.

Investopedia added, “Insurance fraud is basically an attempt to exploit an insurance contract. Insurance is meant to protect against risks. It isn’t meant to be a tool to enrich the insured. Although insurance fraud by the policy issuer still occurs, the majority of cases have to do with the policyholder attempting to receive more money by exaggerating a claim. More sensational instances such as faking one’s own death or killing someone for the insurance money are comparatively rare.

With a lot of factors and guidelines to consider, you may never be completely safe from different insurance fraud (and any financial investment fraud for that matter!). Here are some early warning signs to help you spot a potential fraud:

Types of Seller Fraud

Seller Fraud involves those deals that providers make which exploits policy contracts, benefiting the seller while mainly harming the buyer. There are many variations of seller fraud, but they all center on these four basic types:

Ghost Companies

Ghost companies or ghost brokers are fraudsters who sell apparently cheap insurance deals but issue policies that aren’t worth the paper they’re written on. In this scenario, policies are issued and premiums accepted from policyholders, but the company underwriting the policy isn’t legitimate and often doesn’t exist.

Put simply, ghost companies operate in two ways:

1.) Policies are bought from legitimate insurance companies using false information and then doctored before being sold to the unsuspecting client.

2.) Fake policy documents designed to look like they have been issued by legitimate insurance companies are created and sold to customers.

These downright illegal scams can easily be considered a type of boiler room operation, where a team of high-pressure scam artists dial likely victims to sell them false policies. The problem with this is (and unfortunate as it could get) that the fraud isn’t usually discovered until someone tries to file a claim on the policy that their family member thought was in effect.

Premium Theft

Premium theft is when the insurance representative takes the premium for a policy, but doesn’t use for its intended use, rendering the expected policy to be invalid. In essence, the agent simply takes the money for himself or herself.

Fortunately for most people, premium theft has become less of an issue as more companies have moved towards direct deposit models. Then again, premium theft is still possible in some cases especially when a deal provides for suspicious and highly-broken down payment policies.


Churning basically refers to a situation where the insurance representative strongly advises the customer to either cancel, renew and/or open new policies in a way that is beneficial to him or her, instead of beneficial to the client.

This type of insurance fraud often targets customers who are easily driven by the agent’s passion. As such, the agent gets a client to sign up for more policies, thus more premium. In turn, the fraudster gets larger commissions.

According to Money & Career, “For conservative, long-term investors, it is considered general wisdom that buy and hold strategies are the best way to go. So, if you are receiving confirmations once or twice a week, or 10 or more times per month, this may be a warning sign that your broker is excessively trading your account.”

Over or Under Coverage

Similar to churning, over- or under-coverage scams happen when an insurance representative tries to convince customers to buy coverage they don’t need, or sells a lesser policy and represents it as a complete policy.

This type of fraud can easily happen in other business, and the best thing about it (for the scammers) is that it doesn’t look like a scam. However, you should understand that the insurance rep is essentially trying to maximize his commissions, as well as to ensure the sale rather than focusing on meeting the client’s needs.

Types of Buyer Fraud

Much like Seller Fraud, Buyer Fraud also comes in a number of ways, but the overall theme is buyer dishonesty, “allowing” the fraudster to prematurely the supposed benefits from the policy:


Post-Dated Life Insurance

Post-dated life insurance is a type of insurance fraud wherein a policy was created after supposedly insured’s death. The fraudster makes it as if the policy has been in effect well before the passing of the documented insured, thus, resulting to claim from the company.

This kind of scam is often carried out by delinquents with the help of a charismatic insurance agent. Since record-keeping nowadays have been more rigorous than before, post-dated life insurance fraud is fortunately easier to detect.

False Medical History

This one is by the textbook. Falsifying medical history is one of the most common types and essentially the easiest type of insurance fraud. By omitting tiny details, such as a medical condition or a smoking habit, the buyer hopes to get the insurance policy at a cheaper deal than he or she would have gotten otherwise.

Lack of Insurable Interest

Some people are willing to do passively but chaotically dark deeds just to make a better deal. It is true that there are buyers who insure people they shouldn’t be insuring, in hopes that they will die. This constitutes fraud.

Faking Death or Disability

Many life insurance policies have riders for disability, and this is a good opportunity for scammers to prematurely get the payout. However, some people take it a step further and fake their own deaths! In both cases, the fraudster has to deal with the possibility of being discovered through an investigation.

As the old saying goes, insurance is a business that is built on risk analysis and probabilities. This makes every instance of insurance fraud very detrimental to the enterprise, whether it is from the seller or the buyer. For this reason, companies are forced to build contingency funds to protect them against fraud and any other unforeseen events.

While security is good from the client investor’s perspective, personal life insurance premiums tend to be higher. At the end of the day, it all boils down to both parties being honest as well as both parties being vigilant in spotting dishonest activities.


Life Insurance Hacks: Basic Tips to Get the Cheapest Premium

Getting Life Insurance can be expensive. An insurance premium can often cost you more than what you can get for term life insurance, and it could prove to be pretty bothersome at times. However, it doesn’t have to be. There are ways for you to get the most out of an insurance deal, and you won’t need to be buying expensive premiums just to get a good deal.

Here are some tips for you to get the best Life Insurance available:

Considering Term Life Insurance Policies

As the name implies, Term Insurance policies provide protection for a specific period of time and generally pay a benefit only if the insured passes away during the “term.” Term periods typically range from one year to 30 years, with 20 years being the most common term.

One of the biggest advantages of term insurance is its lower initial cost in comparison to permanent insurance. Term Insurance is generally cheaper because you’re generally just paying for the death benefit – the lump sum payment the beneficiaries may receive upon the death of the insured, provided that it happened within term of the policy. As with most permanent policies, your premiums help fund the death benefit and can accumulate cash value.

couple discussing insurance

Term insurance is often a good choice for people in their family-formation years, especially if they’re on a tight budget, because it allows them to buy high levels of coverage when the need for protection is often greatest. Term insurance is also a good option for covering needs that may disappear in time. For instance, if paying for college is a major financial concern but you’re pretty sure that you won’t need life insurance coverage after the kids graduate, then it might make more sense to buy a term policy during your children’s college years.

Also, you can always just renew your Term Insurance if – which is the best case scenario – nothing bad happens to you during the “term”.

Get More than One Quote

The two most basic keys to getting cheap Life Insurance is to focus on getting a Term Life Insurance policy, and to get quotes from multiple providers. So, shop around!

Life Insurance is basically a purchase. Just like most purchasing decisions, finding many options can give you an edge. Most people don’t bother obtaining multiple quotes because it’s time-consuming. It could be an arduous task, but surely it would be better to spend more time before closing a Life Insurance deal than to regret your impulsive choices.

With today’s technology, there are now ways to go about the time-consuming aspect of finding multiple quotes for your Life Insurance policy. For example, using an online life insurance quote tool is the quickest way to get quotes from several reputable insurers at one time.

Avoid Riders and Additional Insurance

Riders are the supplementary benefits added in the primary life insurance policy purchased by the insured. These are the additional covers offered to the insured with the main policy so that the insured can get additional benefits under the single plan. Although they are nifty by nature, these riders entail additional costs to the insured in the form of increased premiums.

happy family

If your goal is to find the cheapest insurance possible, the best course of action is for you to say no to any add-on insurance or policy riders. Examples of these add-ons include the option to purchase child policies or more insurance at a future date without going through the medical exam process again.

Then again, there are “good” riders that can be beneficial in the end. Riders can be purchased to accelerate your death benefit and pay you out for medical expenses if you have a terminal illness but haven’t passed away yet. Term conversion is another rider that allows you the option of converting your Term policy to a Permanent (whole life) policy.

By the end of the day, you have to choose your coverage wisely. If you need coverage for your kids, then it’s totally fine to pay for the extra fee – but make sure that you actually “need” these coverage. Also, if you’re someone who is on the fence between term and whole life coverage, the Term Conversion Rider can give you that option for a few additional dollars per month.

Check your Lifestyle

For most Life Insurance Policies which are taken out over an agreed period or term, your premiums are based on a number of factors. When you apply for Life Insurance, your insurance company assesses certain criteria and details about you and your lifestyle in order to determine the cost of your premiums, and whether or not they would accept your application based on what you tell them.

insurance agent

This is one of the few insurance products that have the price tailored specifically to you, and your provider takes into consideration some or all of the following:

  • Age: Here’s a general Life Insurance rule of thumb: The younger you are, the better health you’re likely to be in, so getting a life insurance early on can mean lower premiums. Put simply, the younger you are when applying for insurance, the cheaper it could be.
  • Health and weight: If you are classed as overweight or obese based on a height-to-weight ratio measurement, you may pay more for your policy. This is because your insurance company could assume that if you are overweight, you are more likely to suffer from weight-related health problems.
  • Medical history: Most life insurance policies are medically underwritten, thus, you have to provide information about your immediate relatives’ medical history. Your insurance company, however, do pay particular attention to your medical history. Also, watch other small details – cholesterol levels can affect your rates, as insurers often give relatively more expensive premiums to those with already high cholesterol levels.
  • Occupation: Some professions carry a greater risk because of their day-to-day duties, so you might find that this impacts the cost of your insurance. A fireman, for example, is likely to pay higher premiums than an office worker.
  • Lifestyle: You can be asked to provide details of any habits or hobbies that play a regular role in your life. Frequent smoking and drinking are likely to increase your insurance rates because of the toll they can take on your health. Certain high risk pastimes could also affect your premiums, including sky diving, mountaineering, and motor sports, among other extreme sports.

Get in on a Group Policy or Bundle your Policy

Most of the corporate benefit programs nowadays offer Life Insurance that doesn’t require a physical exam or for you to undergo any medical tests. While the amount you can take out is often limited, it is a way to get some coverage if you feel that you are currently unfit or fear that you are unable to afford the premium by yourself. Becoming a member of an association or organization can often get access to a group life insurance policy in many cases.

more happy family

Also, another way to receive discounts on your quoted life insurance rate is to bundle coverage with your car, home, or other insurance. Large-scale insurers now have features that can be fairly cheap in the long run because they give you the most options to bundle. A good strategy to maximize your bundled discounts is to review all of your insurance at the same time and pick the company that can give you the best deal for switching.

Getting life insurance doesn’t need to be a tall order for anyone. If you follow these tips, surely you can reduce your life insurance premium costs and live a more comfortable and secured life.