Life Insurance Fraud

Life insurance fraud can be committed against insurance companies or by insurers against beneficiaries. It includes acts by people to get insurance benefits or proceeds they aren’t entitled to. Life insurance fraud also includes acts by insurers to deny benefits to people the companies have insured.

Written by
Terry Turner
Terry Turner
Senior Financial Writer and Financial Wellness Facilitator
Terry Turner has more than 35 years of journalism experience, including covering benefits, spending and congressional action on federal programs such as Social Security and Medicare. He is a Certified Financial Wellness Facilitator through the National Wellness Institute and the Foundation for Financial Wellness and a member of the Association for Financial Counseling & Planning Education (AFCPE®).
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Edited By
Matt Mauney
Matt Mauney
Financial Editor
Matt Mauney is an award-winning journalist, editor, writer and content strategist with more than 15 years of professional experience working for nationally recognized newspapers and digital brands. He has contributed content for ChicagoTribune.com, LATimes.com, The Hill and the American Cancer Society, and he was part of the Orlando Sentinel digital staff that was named a Pulitzer Prize finalist in 2017.
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Financially Reviewed By
Eric Estevez
Eric Estevez
Owner of HLC Insurance Broker, LLC
Eric Estevez is a duly licensed independent insurance broker and a former financial institution auditor with more than a decade of professional experience. He has specialized in federal, state and local compliance for both large and small businesses.
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Published: January 19, 2021
Updated: May 23, 2023
13 min read time
This page features 8 Cited Research Articles

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Key Takeaways

Life insurance fraud can be committed by policyholders, insurance agents, scammers and other third parties.
Some of the most common instances of life insurance fraud include claims fraud, agent fraud, fake policy schemes and forgery.
Avoid becoming a victim of life insurance fraud by being wary of deals that are too good to be true and researching the insurance seller’s credentials.

What Is Life Insurance Fraud?

Insurance fraud includes any action which defrauds a life insurance process. It includes actions by the insured or the insurer which break the terms of a life insurance contract or cheats in a way that lets one or the other illegally gain benefits they are not entitled to.

Fraud can be a crime or can be as simple as lying on your life insurance application.

If you suspect insurance fraud, you should report it to state and federal law enforcement. Serious cases of life insurance fraud can be prosecuted.

Did You Know?

Life insurance fraud is estimated to cost as much as $10 billion to $20 billion a year, according to the Reinsurance Group of America. A survey of professionals in the life insurance industry estimated that 1 percent to 3 percent of all life insurance claims are either investigated for fraud or misrepresentation or are denied outright.

Source: Reinsurance Group of America

The overall insurance industry in the United States involves more than 7,000 companies collecting $1 trillion in premiums every year. The size of the industry and its revenue make it a ripe target for fraud.

The FBI estimates insurance fraud costs the average American household $400 to $700 in higher premiums every year.

Examples of Life Insurance Fraud

There are several types of life insurance fraud that can be committed by the policyholder, insurance agents, scammers and other third parties.

Not all insurance fraud is serious enough to be prosecuted as a crime, but you may be punished with having to pay higher premiums, cancellation of your policy or being denied coverage with a new policy.

Most Common Examples of Life Insurance Fraud

Insurance Claims Fraud: This can include cases in which a beneficiary kills the insured to get an insurance payout. It may also include other questionable deaths where the death may appear to have been staged or involve a fake identity of the deceased to get a payout.
Agent Fraud: Legitimate insurance agents may commit fraud including stealing premium payments or lying about the coverage in a policy you buy.
Churning: This is a type of agent fraud in which the agent replaces your existing policy with a new one from another company to earn an additional commission on the sale.
Twisting: Similar to churning, this involves an agent replacing your existing life insurance policy with another policy from the same company to earn an extra commission.
Fake Policy Schemes: These are scams in which con artists masquerading as insurance agents sell fake life insurance policies. The scammers take the premiums with no plans to ever pay benefits.
Forgery: This tends to happen when someone other than the policyholder forges documents to change the ownership of the life insurance policy or change who is named as beneficiaries to the policy.
Jumbo Violations: Jumbo violations are cases of total life insurance coverage that goes over a specific limit on how much life insurance you can buy.
Stacking: This involves buying several different life insurance policies with lower payouts that, combined, add up to a large amount of coverage. By buying lower coverage policies, the policyholder avoids the life insurance underwriting scrutiny that comes with larger policies.
Rebating: It’s illegal in most states for an agent to return part of your premium of the agent’s commission or pay you in some other way to get you to go with a particular insurance company.
False Policy Application: Simply putting false or misleading information — including your income or net worth — in your application can constitute life insurance fraud. If your interview doesn’t match with the results of your life insurance medical exam, that can put investigators on the trail of possible fraud.
Suspicious Policy Application: This includes suspicious timing of taking out a life insurance policy shortly before the insured’s death. Investigators may look into murder-for-hire schemes or hidden information about the insured’s health.

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How to Avoid Becoming a Victim of Life Insurance Fraud

The first step to avoid becoming a victim of life insurance fraud is to be a cautious consumer. You should check a seller’s credentials, ask questions and look out for signs of fraud.

Tips to Avoid Life Insurance Fraud

Beware of Low Premiums: You can save money by shopping around, but if it sounds too good to be true, it may be. Ask questions, settle for nothing less than detailed answers and call the insurance company’s home office to get more information if you think it’s a scam.
Be wary of phone or door-to-door sales: These practices are often used by unlicensed companies or scammers. Get a physical address and confirm with your state insurance commission that the company and agent are licensed.
Check out the agent’s license: Contact your state’s insurance commission to confirm that your agent is licensed and his or her license is up to date. The National Association of Insurance Commissioners has contact information for each state’s office.
Don’t rush: Take as much time as you need to shop for the best life insurance policy at the best price. Don’t let an agent rush you into buying a policy. Be suspicious if an agent is evasive about answering your questions about premiums, prices, coverage or payout arrangements.
Keep Your Documents Safe: Make sure you keep your actual policy and any other insurance-related documents in a secure location. This should include advertisements mailed to you, premium payment receipts and information about any life insurance claims. It’s also smart to keep notes of any telephone conversations you have with your agent or insurance company representatives.
Pay by Check or Credit Card: You want to be able to verify your life insurance payments. Checks and credit cards make that easy. Be suspicious if an agent tells you that you have to pay by cash. If you do pay with cash, make sure you have a receipt that shows the company’s name, the date and how much you paid.

Elderly consumers are frequent targets of scammers. If you suspect an older relative is being scammed, report it to your local police.

There are also several nonprofit, public interest and government agencies that can provide a wealth of consumer information about protecting yourself from various types of insurance fraud.

Consumer Resources for Insurance Fraud Information

Coalition Against Insurance Fraud (CAIF), a national alliance of consumer groups, government agencies and insurers
National Association of Insurance Commissioners (NAIC), a professional organization of state insurance commissioners from across the U.S.
National Insurance Crime Bureau (NCIB), a nonprofit organization that works with insurers and law enforcement to fight insurance fraud