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 guilty again, especially since, sadly, fraud appears to be on the rise by most statistical measures.
Research by the non-profit organization The Coalition Against Insurance Fraud finds that life insurance fraud by all parties costs the average household $ 1,650 per year and increases life insurance premiums by 25% .
Life insurers are often guilty of insurance fraud when their agents make “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, on your existing policy. Agents do this to earn more commissions for themselves without having to search for new prospects for the business. The shake can result in increased premiums for a customer and clearly costs them of their cash value.
Another insurance fraud practiced by agents, however, is called “window.” This is where, unable to get a client or applicant’s signature on a required document, but already has that signature elsewhere, the agent holds a signed document behind the unsigned document, presses it against a window to make it the light shine and trace on the signature with ballpoint pen to forge the signature of the client or applicant.
When big-name insurance companies make their agents do bad things, it makes big headlines, but the fact is, the public is far more guilty of insurance fraud than 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 misrepresentation of background or financial income information is another form of insurance fraud that consumers often engage in. They may be embarrassed by their medical history or income, or they may find that if they tell the truth, their coverage will decrease or their premiums will be too high. If a life insurance company discovers that someone lied on their application, they have the right to not 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 great investigative resources that life insurance companies have.
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 documentation, including getting receipts for every penny you give to your agent, and never ignore any notification from your life insurance company.
Life insurance is never free and it is not a pension plan, although certain policies can become self-financing, 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 number one function of life insurance is protection against the unexpected, and most people do not need life insurance in their later years. It is meant to be temporary.