Fraud is an unfortunate reality in the life insurance industry, with policyholders sometimes resorting to deceptive practices for personal financial gain. These fraudulent activities can have serious consequences for both the insurance industry and innocent policyholders.
There are several types of insurance fraud, some of which applicants and policyholders are unaware they commit. Fraud could involve acts of intentional or unintentional misrepresentation, falsification of facts, or even staged incidents to obtain undeserved benefits. Engaging in life insurance fraud not only presents potential legal repercussions but also contributes to the rising costs of insurance premiums for all other policyholders. In this article, we’ll help you understand the types of insurance fraud policyholders commit and the consequences of these actions to ensure you stay savvy and avoid unknowingly committing fraud.
Five Types of Insurance Fraud Policyholders Commit
While you may have heard of life insurance scams and fraud committed by organizations pretending to be insurance carriers, applicants and policyholders can commit insurance fraud as well. The most common types of fraud that policyholders commit are:
Misrepresenting or withholding medical information: Applicants may commit fraud by providing false information about their health and medical history. By concealing pre-existing conditions or failing to disclose previous illnesses or surgeries, applicants may try to secure lower premiums or even coverage that would otherwise be denied.
Providing false information: By inflating their income or assets, people may try to qualify for higher coverage amounts or more favorable premium rates when applying for life insurance. However, insurance companies may verify the applicant's financial information through documentation or background checks, minimizing the risk of deception.
Falsely describing lifestyle choices and habits: Carriers assess applicants' lifestyles and habits to determine whether they partake in high-risk activities. Some people may lie about their lifestyle choices to qualify for lower premiums. For example, lying about smoking habits can lead to lower premiums since insurance companies may offer lower rates to non-smokers.
Filing a false life insurance claim: In some instances, policyholders or their beneficiaries may file a false claim to take advantage of a life insurance policy’s death benefit. This involves faking an individual's death for a financial payout, which can have serious legal consequences.
Forging changes to another person’s policy: Individuals who are caretakers, beneficiaries, or loved ones close to a life insurance policyholder may commit life insurance fraud by making changes to the other person’s policy. For example, a person may impersonate their spouse, parent, or grandparent in order to have access to the individual’s policy and make changes for their own financial gain.
Consequences of Committing Life Insurance Fraud
Life insurance fraud committed by policyholders can have serious ramifications that affect both insurance carriers and policyholders. Here’s an overview of some of the consequences of fraud:
Legal consequences: If caught, policyholders who commit life insurance fraud can face criminal charges. The severity of the penalties depends on the extent of the fraud and whether it is classified as a misdemeanor or a felony.
Policy penalties: Insurance companies have the right to penalize policyholders who engage in fraudulent activities. This can result in various consequences, such as increased premiums, reduced coverage amounts, or policy cancellation.
Denial of coverage: If a policyholder is found guilty of committing life insurance fraud, they may be denied coverage for future policies. This can have long-term implications as it may become challenging for the individual to obtain life insurance from reputable providers in the future.
SelectQuote Can Help You Apply for Life Insurance the Right Way
Navigating the life insurance application process can be challenging. That’s why it’s important to have our licensed insurance agents guide you as you complete your application. With nearly 40 years of experience, we’re prepared to help you find and apply for the life insurance policy that’s right for your budget and lifestyle. We partner with several of the nation’s most trusted insurance carriers and will help you review and compare rates in just minutes. At SelectQuote, we’ll take the time to review your needs and priorities, so you’ll feel confident that you have the right coverage.
