Life Insurance Fraud

Life insurance fraud encompasses illegitimate methods employed by policyholders or third parties to obtain undeserved benefits from insurance companies. These acts involve the submission of false information or manipulation of the circumstances surrounding a life insurance policy to secure unwarranted insurance benefits.

  • Written by
    Lindsey Crossmier

    Lindsey Crossmier

    Financial Writer

    Lindsey Crossmier is an accomplished writer with experience working for The Florida Review and Bookstar PR. As a financial writer, she covers Medicare, life insurance and dental insurance topics for RetireGuide. Research-based data drives her work.

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  • Edited By
    Michael Santiago
    headshot of Michael Santiago

    Michael Santiago

    Senior Financial Editor

    Michael Santiago, a senior financial editor, joined RetireGuide in 2023. With over 10 years of professional writing and editing experience, he brings a wealth of expertise in creating content for diverse industries, including travel and healthcare. Having traveled to more than 40 countries across five continents and lived in Europe and Asia for several years, Michael's global perspective enriches his work. He combines his strong writing skills, editorial judgment and passion for crafting accurate and engrossing content to enhance the user experience on RetireGuide.

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  • Reviewed By
    Eric Estevez
    Eric Estevez, Independent Licensed Life Insurance Agent

    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: July 6, 2023
  • 8 min read time
  • This page features 7 Cited Research Articles
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A qualified expert reviewed the content on this page to ensure it is factually accurate, meets current industry standards and helps readers achieve a better understanding of retirement topics.

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How to Cite RetireGuide.com's Article

APA Crossmier, L. (2023, July 6). Life Insurance Fraud. RetireGuide.com. Retrieved April 12, 2024, from https://www.retireguide.com/life-insurance/fraud/

MLA Crossmier, Lindsey. "Life Insurance Fraud." RetireGuide.com, 6 Jul 2023, https://www.retireguide.com/life-insurance/fraud/.

Chicago Crossmier, Lindsey. "Life Insurance Fraud." RetireGuide.com. Last modified July 6, 2023. https://www.retireguide.com/life-insurance/fraud/.

Key Takeaways
  • Scammers have various means of targeting insured individuals, including agent fraud, fraudulent policy schemes, forgery and falsification of death.
  • To avoid life insurance fraud, exercise caution when encountering deals that seem too good to be true and conduct thorough research on the credentials of the insurance seller.
  • Individuals should promptly report any instances of life insurance fraud to both the FBI and the respective insurance companies to ensure appropriate actions are taken.

What Is Life Insurance Fraud?

Insurance fraud encompasses any fraudulent action that deceives the life insurance process. It involves actions by either the insured or the insurer that violate the terms of a life insurance contract or engage in deceptive practices to illegitimately obtain benefits that are not rightfully deserved.

Life insurance fraud is a serious offense with severe consequences that can cause major monetary harm to insurance companies and their policyholders. If you have any suspicions about someone engaging in life insurance fraud, it is crucial to report it to the proper authorities.

Punishment for life insurance fraud varies by state, and can include incarceration, fines and denied future coverage.

Types of Life Insurance Scams

Life insurance fraud can be committed by various parties, including the policyholder, insurance agents, scammers and other third parties. The diverse types of life insurance fraud include policyholder fraud, application fraud, agent fraud and medical provider fraud.

Types of Fraud
Policyholder Fraud
This occurs when an insured individual deliberately deceives the insurance company to obtain inflated benefits. For instance, it may involve falsifying medical records, fabricating deaths or intentionally withholding vital information.
Application Fraud
This type of fraud takes place when an applicant engages in deceptive acts or provides false information to obtain life insurance benefits. Examples include identity theft and falsification of information to fraudulently acquire benefits to which they are not entitled.
Agent Fraud
This form of fraud transpires when agents violate their codes of conduct and betray their commitment by deceiving policyholders. They mislead insured individuals by providing inaccurate information about standard insurance policies. Examples of agent fraud include forgery and manipulating policyholders into purchasing new policies through persuasive tactics.
Medical Provider Fraud
This type of fraud entails the dissemination of misleading information to persuade insurance companies into making unauthorized payments to the policyholder, third parties or medical service providers. Examples include providing falsified medical records or exaggerating medical conditions to secure undeserved financial benefits.
Don’t blindly sign paperwork. Review each paper you will have to sign before policy issuance to ensure all information is accurate to the best of your knowledge.

Life Insurance Fraud Examples

Understanding the various instances of life insurance fraud is crucial to avoid falling victim to or unknowingly participating in fraudulent activities. Here are some key instances to be aware of:

Examples of Fraud
Stranger-Originated Life Insurance (STOLI)
This may include instances where a person with no insurable interest in the insured initiates a life insurance policy to sell the policy to a third party or investor.
Premium Fraud
Premium fraud happens when applicants lie on their payment receipts or forms to pay lower premium fees.
Faked Death
This happens when individuals fake their death by reporting false accidents or faking a death certificate for a life insurance payout. This can be done by a policyholder or a third party who seeks to benefit unscrupulously.
Churning
This type of agent fraud is when the agent replaces your existing policy with a new one from another company to earn an additional commission on the sale.
Twisting
Like churning, an agent replaces your existing life insurance policy with another one from the same company to earn an extra commission.
Forgery
This happens when someone other than the policyholder forges documents to change the life insurance policy ownership or who is named a beneficiary to the policy.
Jumbo Violations
Jumbo violations are cases of total life insurance coverage that exceed a specific limit on how much life insurance you can buy.
Stacking
This type of fraud involves obtaining multiple life insurance policies with lower individual payouts that, when combined, result in a higher total coverage amount than warranted. By buying lower coverage policies, the policyholder avoids the life insurance underwriting scrutiny that comes with more extensive policies.
Rebating
In most states, it is illegal for an agent to offer any form of premium rebate or alternative compensation to persuade individuals to choose a specific insurance company.
Stranger-Owned Annuity (SOA)
This scheme entails purchasing an annuity without any genuine interest on behalf of the annuitant, solely to exploit tax advantages and evade regulatory restrictions.

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. These tips will, however, help prevent mishaps:

Beware of low premiums
While shopping around can lead to cost savings, it is important to exercise caution if an offer seems too good to be true. Ask thorough questions, seek detailed answers and contact the insurance company’s home office for additional information if suspicions of fraud arise.

Be wary of phone or door-to-door sales
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. The National Association of Insurance Commissioners has contact information for each state’s office.

Don’t rush
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.

Research before deciding
To avoid falling victim to fraud, it is essential to conduct thorough research by carefully reviewing policy documents and terms provided by insurance companies. Seeking guidance from a knowledgeable financial advisor can also provide valuable insights and assistance in safeguarding against fraudulent activities.

Keep your documents safe
Ensure you keep your policy and any other insurance-related documents in a secure location, including advertisements mailed to you, premium payment receipts and information about any life insurance claims. Also, keep notes of any telephone conversations with your agent or insurance company representatives and avoid giving out personal information that may make you vulnerable.

Pay by check or credit card
To ensure the verification of your life insurance payments, it is advisable to use checks or credit cards, as they provide a convenient paper trail. Exercise caution if an agent insists on cash payments, as this may raise suspicions. If you choose to pay with cash, make sure to obtain a receipt that includes the company’s name, the date of payment and the amount paid as proof of transaction.

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Signs of Life Insurance Fraud

Note that there are many signs to remember as a policyholder or insurance customer to avoid consequential actions regarding your life insurance policy. Here are some signs you should watch out for:

Unusual changes in policy detail
This happens with sudden changes or modifications to your data in the insurance form, such as coverage amounts, beneficiaries and premium payments. This change can happen without your consent from an insurance agent or third party.

Inconsistent medical records
Insurance companies and relevant authorities closely scrutinize medical records, comparing them with hospital documentation of an individual’s health status, treatments and diagnoses. Any discrepancies or inconsistencies in these records can raise suspicion and trigger investigations into potential fraudulent or suspicious activities.

False information on the application
Putting false or misleading information — including your income or net worth — in the underwriting process can constitute life insurance fraud.

Unusual beneficiary designation
Unexplained and sudden changes in the designated beneficiaries of the insured, often involving unfamiliar names, can be indicative of fraud committed by unethical insurance agents or fraudsters.

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How To Report Life Insurance Fraud

Before reporting a case, it is crucial to gather all relevant information and evidence that will assist the appropriate authorities in effectively addressing your concerns. If needed, seeking guidance from an attorney can also be beneficial in navigating the process.

Where To Report Suspected Insurance Fraud:
  • Insurance company’s fraud hotline or main office
  • Federal Trade Commission to report suspected fraud and scams
  • Your local FBI field office
  • Your local police department
  • Your state’s consumer fraud bureau or consumer protection agency
  • National Insurance Crime Bureau or the National Association of Insurance Commissioners.

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

Frequently Asked Questions About Life Insurance Fraud

What should I do if I suspect life insurance fraud?
One of the ways people get defrauded is by keeping quiet. When you suspect a life insurance fraud, immediately reach out to the appropriate bodies, such as law enforcement agencies or your insurance company, and provide them with the necessary information that would aid them in addressing your problems well.
What is the typical insurance fraud punishment?
Insurance fraud types vary, and so do the consequences based on the crime's severity or jurisdiction of the case. Fraud is usually considered a serious crime, and consequences can include denial of future applications, fines, damage to one’s reputation and even legal prosecution.
How can I protect myself from becoming a victim of life insurance fraud?
You can always protect yourself from life insurance fraud by paying attention to the details of your insurance policy, keeping close contact with your insurance company, verifying the proposals of agents and by being vigilant about any suspicious activity or unexplained change in insurance policies.
Last Modified: July 6, 2023
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7 Cited Research Articles

  1. Texas Department of Insurance. (2020, December 12). Insurance Fraud Guide. Retrieved from https://www.tdi.texas.gov/pubs/consumer/cb044.html
  2. California Department of Insurance. (n.d.). Insurance Fraud Is a Felony. Retrieved from http://www.insurance.ca.gov/01-consumers/105-type/95-guides/15-gen/insur-fraud-is-felony.cfm
  3. California Department of Insurance. (n.d.). What Is Insurance Fraud? Retrieved from http://www.insurance.ca.gov/0300-fraud/0100-fraud-division-overview/05-ins-fraud/index.cfm#life
  4. Coalition Against Insurance Fraud. (n.d.). Fraud Stats. Retrieved from https://insurancefraud.org/fraud-stats/
  5. Federal Bureau of Investigation. (n.d.). Insurance Fraud. Retrieved from https://www.fbi.gov/stats-services/publications/insurance-fraud
  6. New York State Department of Financial Services. (n.d.). Report Suspected Insurance Fraud. Retrieved from https://www.dfs.ny.gov/consumers/scams_schemes_frauds/insurance_fraud_avoid_becoming_a_victim
  7. New York State Department of Financial Services. (n.d.). What Is Insurance Fraud? Retrieved from https://www.dfs.ny.gov/complaints/report_fraud