Fraud is a constant issue in the insurance sector, and we all pay for it. The Coalition Against Insurance Fraud estimates that it costs insurers $308.6 billion each year, with customers footing the tab to make up the difference

According to the National Association of Insurance Commissioners, people perpetrate $74.7 billion in life insurance fraud each year, frequently to earn a reduced premium or money they are not entitled to.

What Precisely Is Life Insurance Fraud?

There are several sorts of life insurance fraud, and in some situations, applicants and policyholders are unaware that they are doing it.

You Lied On Your Application

When you apply for life insurance, you will be asked questions about your health, smoking status, lifestyle, hobbies, and income. This information is used by the insurer to determine how "risky" you are to cover and to determine your premium, which is the amount of money you'll pay to keep your coverage active.

The idea is to be as open and honest as possible. If you willfully falsify or omit information on your application, you are committing "material misrepresentation," a type of fraud. Now, forgetting your relative had high cholesterol isn't always considered dishonesty. However, if you claim you've never smoked cigarettes but have respiratory problems as a result of smoking, it qualifies.

The insurance will very certainly find out as well. The finest life insurance firms use third-party records during the underwriting process to guarantee that what you're stating is true. These might include:

•Medication data over the previous five to seven years.

•Major traffic offenses are listed on the driver's record.

•MIB, formerly known as the Medical Information Bureau, is a report including information from previous life insurance applications.

•Check your credit history for bankruptcies

Some plans also include a medical checkup, which will expose your weight, nicotine usage, and other health concerns.

Filing A Bogus Claim

This isn't limited to Hollywood: there have been incidents of people faking their own death or the death of a loved one in order to receive a life insurance claim.

A different sort of claims fraud occurs when a life insurance beneficiary kills a policyholder in order to get the payout. According to the National Insurance Crime Bureau, if life insurance is obtained soon before the policyholder dies, authorities may look into whether the beneficiary attempted to profit from the death.

Making Unauthorised Alterations To Someone Else's Policies

According to Russell Anderson, certified fraud examiner and head of financial crimes services for LIMRA, a life insurance trade association, forgery falls under the scope of identity theft or account takeover fraud.

"This is where one person impersonates another with the goal of accessing their [life insurance policies] to steal some of their data, but most likely not to access and steal the cash worth in those accounts," Anderson explains.

According to LIMRA, the primary perpetrators are family members, friends, caretakers, and anyone who have a relationship with the insured.

There have also been instances when a third party pretended to be the policyholder in order to modify the beneficiaries or policy ownership without the policyholder's approval. In 2017, for example, Pennsylvania authorities penalized a funeral director for faking a client's signature on paperwork listing his firm as the beneficiary of her policy.

The elderly and fragile seniors are prime targets. According to a recent poll, 43% of LIMRA member firms expect a rise in account takeover fraud by linked parties, such as family members, between 2020 and 2021. According to the same poll, around 34% of insurers reported an increase in third-party account takeover fraud by unknown fraudsters.

The Ramifications Of Life Insurance Fraud Aren't Nice.

The consequences of perpetrating life insurance fraud vary depending on the severity of the case, with criminal charges being the most severe.

If insurers find you lied on your application, they may reject it or hike your rate.

If you die during the contestability period, which is within two years of the policy's effective date, insurers may withhold payment while they investigate. They also have the authority to withhold or lower the payout to your beneficiaries if you withheld critical information about your health — even if you died for unrelated circumstances.

Life Insurance Fraud Prevention And Reporting

If you feel you have been a victim of insurance fraud, call the National Insurance Crime Bureau at 800-TEL-NICB or register a report online at NICB.org.

Most states have an insurance fraud bureau as well, and Anderson advises notifying your bank if you feel your identity has been stolen.

To ensure that you are not being deceptive, whether intentionally or unintentionally:

•In your life insurance application, be genuine. This is the greatest approach to ensure your loved ones receive compensation.

•Use a licenced agent or broker. These experts can guide you through the application process.

•Allow no one to sign you up for your insurer's web portal on your behalf. Many insurers provide clients with the ability to control their coverage online. Anderson emphasizes the need to enable security tools such as multifactor authentication.

•Examine your beneficiaries. If you've had a life change, such as getting married, you should update them.