How To Avoid Life Insurance Fraud And Reap Maximum Benefits?

Avoiding life insurance fraud is essential to garnering the maximum benefits of an insurance policy. Fraudsters can use different baits to lure you and deprive you of much-needed financial protection. It also poses a grave risk to your family’s dream future.

Before discussing how to avoid life insurance fraud, we will look into the common scams in the insurance world. Depending on the type of fraud, a policyholder can be a victim or an offender.

These scams include:

Fake deaths

Fake deaths are a common fraud in the insurance world. People stage their death to receive insurance benefits. They do so in collusion with the beneficiary. 

After staging their death, they shift to another country. They change their names and credentials. Such people may enjoy life for a short time but cannot escape the law forever.

It is a severe crime with drastic retribution.

Incorrect information on the application form

If you provide the wrong information on the application form, it jeopardizes your insurance policy. The insurance company can increase your premium or cancel your policy on discovering the truth. It may also refuse to entertain the beneficiary’s claim if the truth surfaces after your death.

People try to hide vital information. They may lie about their medical condition to secure an insurance policy at a cheap rate. But in most cases, the insurance company uncovers the truth. 

Fake policies

Another common insurance fraud is the fake policy sold by an imposter. You may pay thousands of dollars in premium before coming across the reality. Such an imposter may also make a bogus call. He may try to extract some sensitive information like your social security number.

If somebody tries to sell you an insurance policy, you must investigate whether he has a valid license or not. You can verify this information online or contact the respective insurance company.

Churning

An Agent commits this insurance fraud to earn extra revenue. He may try to sell you a supplemental insurance policy. It can deprive you of hard-earned money with no additional benefit.

So, when an agent asks you to buy a supplemental insurance policy, you should profoundly analyze the offer. If it aligns with your future goals, only then show acceptance. Don’t sign up for anything without weighing the pros and cons. 

Premium diversion

It is another fraud that agents commit to steal your money. An agent may ask you to pay an insurance premium in a particular account. From there, he may transfer the amount to a personal account. 

You lose money, and your insurance company may also terminate the policy due to nonpayment of premium. 

Forgery

In this insurance fraud, somebody may change the beneficiary of your policy without your consent. It makes all your money go down the drain and leaves your dependants helpless.

How to prevent life insurance fraud?

The prevention of life insurance fraud is not a challenging task. You need to be truthful and vigilant. Below are the tips that can prove helpful in the prevention of insurance fraud:

Provide correct information

Providing correct information with great attention to detail is obligatory. You must not be a part of fraudulent activity. Even an unintentional mistake can impact your future financial plans.

Licensed insurance agent

Only buy an insurance policy from an agent with an active license. You can easily verify this information online. Or you may contact the respective insurance company.

You cannot trust an agent with an expired license.

Understand the terms and condition

Before signing up for an insurance policy, you must carefully read its terms and conditions. You must meticulously examine whether it has any tricky clause to exploit you. 

Don’t buy a policy that does not secure your family’s future.

Read the fine print

It is also essential for the prevention of insurance fraud. You need to read the fine print carefully. You must ensure that it matches the previously signed terms and conditions.

Free look period

A period of 10 to 30 days allows you to review the insurance policy thoroughly. You can ask your attorney to review the terms and conditions. If the policy does not sit well with your future goals, you can cancel it and get a complete refund.

The free look period offers the best shot to detect fraud in a policy. You need to make the most use of it.

Shop around

The best way to avoid life insurance fraud is to shop around before buying an insurance policy. This way, you get to know the offers of different companies and can make the best choice.

If a company offers you ridiculously cheap rates, don’t get enticed by that. There is something fishy about it.

Ask for referrals

It’s better to seek advice from a friend or relative before buying an insurance policy for the first time. He may refer you to a trusted insurance company. It ensures that you don’t get tricked by some imposter.

Pay through a cheque

Always pay through cheque directly into the insurance company’s account. This way, your money moves through a proper channel and becomes a part of the record. It ensures that an insurance agent does not embezzle your precious money.

Don’t give out vital information

You must not share your details with an unknown person. Don’t give out such information unless someone contacts you through an official channel. Otherwise, it can put you in a precarious situation. 

An unauthorized person can make substantial changes to your life insurance policy. He may change the beneficiary, which can endanger your family’s financial future. So, you need to be extremely careful in this regard.

How to report life insurance fraud?

If anybody commits fraud with you related to your insurance policy, you must not keep it to yourself. It is a criminal offense, and you have every right to report it on available platforms.

Below are the options that you can explore:

  • Report to your insurance company, which may take all the necessary measures to protect you.
  • File a complaint with the fraud bureau of your state. They may act against the named person, and you may get compensation.
  • Another forum for filing complaints related to insurance fraud is National Insurance Crime Bureau. It takes strict action against those involved in such criminal activities.

What happens if a policyholder commits fraud?

If a policyholder commits fraud by concealing vital facts, he pays a massive price. On discovering the truth, the insurance company can take the following actions:

Policy cancellation

The insurance company can cancel your policy. It deprives your family of the desired financial protection. So, you must provide details with complete honesty. Otherwise, you may lose more than you try to save by lying to the insurance company. 

Generally, individuals lie to an insurance company about their medical condition. It helps them secure an insurance policy at more favorable terms.

Unfruitful claims

The insurance company may discover the truth about your fraud after your death. In such a case, it may not entertain the beneficiary’s claim. It will leave your dependants helpless. They may not survive the challenging days ahead.

Increased premium amount

The insurance company also holds the right to increase the insurance premium if it finds out you lied on your application form. It may charge you a significantly higher premium as a penalty for the fraud. If you have already paid several installments, you will have no choice but to agree to the imposed amount. 

Application rejection

The insurance company can reject your application outright if it identifies discrepancies in the information you shared. 

 

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