Life insurance fraud is a black eye for both life insurance companies and life insurance customers. Both parties have been guilty of life insurance fraud and will be again, especially since fraud unfortunately appears to be on the rise by most statistical measures.
Research by the nonprofit The Coalition Against Insurance Fraud concludes that life insurance fraud committed by all parties costs the average household $1,650 per year and increases life insurance premiums by 25%. .
Life insurers are most often guilty of insurance fraud in the form of their agents making “shakes.” This is where the agent looks to cancel your existing life insurance policy and replace it with a new policy that is paid for with the “juice” or cash value of your existing policy. Agents do this to earn more commissions without having to search for new business prospects. Churning can result in higher premiums for a client and clearly costs you cash value.
Yet another insurance fraud practiced by agents is called “windowing.” This is where, unable to obtain a client’s or applicant’s signature on a necessary document but already having that signature elsewhere, the agent holds a signed document behind the unsigned document, presses it against a window to let the light shine through. through it and trace over the signature with a pen to forge the client’s or applicant’s signature.
When big-name insurance companies make their agents do bad things, it makes headlines, but the fact remains that the public is much more guilty of insurance fraud than the companies. And, of course, making false claims is what they do the most, which is why all claims about life insurance death benefit payments are subject to investigation.
But misrepresenting background or financial income information is another form of insurance fraud that consumers often engage in. They may feel embarrassed about their medical history or income, or realize that if they tell the truth, their coverage will be reduced or their premiums will be very high. If a life insurance company discovers that someone lied on your application, it has the right not to pay the claim or not pay the full death benefit depending on the circumstances and the policy.
But there are things life insurance buyers can do to protect themselves against insurance fraud, since they don’t have the extensive investigative resources that life insurance companies do.
Remember, when it comes to life insurance, if it sounds too good to be true, it probably is. There is no free lunch.
Save all your life insurance paperwork, including getting receipts for every penny you give your agent, and never ignore notifications from your life insurance company.
Life insurance is never free and it is not a pension plan, although certain policies can become self-funded, but they never start out that way.
Never buy any coverage you think is unnecessary, never be pressured, and never borrow to finance life insurance.
Although it can be part of an investment portfolio, the primary function of life insurance is protection against the unexpected, and most people don’t need life insurance in their later years. It is meant to be temporary.