Life Insurance Scams: What You Need To Know

Life insurance is meant to provide financial security for your family in the event of your death. However, life insurance fraud costs consumers at least $40 billion each year in the US, with scammers using a variety of tactics to deceive people. These include fake policies, identity theft, and agents pocketing premium payments. To avoid scams, it's important to be vigilant, do your research, and only provide personal information to trusted sources.

Shady agents and impersonators

Shady life insurance agents and impersonators can scam people in several ways. Here are some common methods:

Premium Diversion

The most common form of insurance fraud, according to the FBI, is premium diversion, where agents embezzle insurance premiums. They collect your money for insurance premiums but keep it for themselves, sometimes sending fake documents to make everything look legitimate. To avoid this scam, always contact your state department of insurance to ensure the agent is licensed, get all the official documents associated with your coverage, and make payments to the insurance company, not the individual agent.

Fee Churning

In this scam, an agent convinces you to withdraw cash value or take the surrender value of your permanent life insurance policy to buy more life insurance or switch policies. While the agent earns a commission, your new coverage may be more expensive and no better than your old policy. Don't fall prey to this scam by ensuring you understand the costs, benefits, and restrictions of your new policy.

Forgery

Forgery occurs when an agent forges your signature to make changes to your policy, such as naming themselves as the beneficiary, or takes out a policy without your knowledge to collect commissions. It's difficult to know when this has happened, so only work with licensed agents and review your policies annually.

Fake Policies

Ghost brokers pose as insurance agents and sell fake insurance policies, often advertising cheap insurance on social media or other sites. They request cash or direct payments, and victims only discover the scam when their beneficiaries try to file a claim.

Bogus Contacts

Scammers pose as insurance agents or company representatives and contact you by phone, text, or email, claiming there's a problem with your policy. They may ask for money or personal information such as your Social Security number. Hang up and contact the company yourself if this happens to you.

Beneficiary Scam

Scammers say you're the beneficiary of a policy from someone who has recently passed away, but an outstanding premium balance prevents them from issuing payment. They ask you to pay the balance, often targeting those who have recently lost a loved one by scouring obituaries.

Policy misrepresentation

One example of policy misrepresentation is application fraud, where an individual knowingly provides false information, misrepresents themselves or their health history, or conceals other material facts on their life insurance application. This is done to qualify for more coverage or lower premiums, and lying on a life insurance application is illegal and may result in legal consequences.

Another form of policy misrepresentation is death fraud, where an insured individual fakes their death to collect their life insurance death benefit. Death fraud can also involve a beneficiary premeditating the murder of the insured to collect the policy's payout.

In some cases, policy misrepresentation may involve identity theft, where a scammer poses as a life insurance agent to steal personal information such as Social Security numbers, banking information, and credit card numbers. This information is then used to commit fraud or steal the individual's identity.

To avoid policy misrepresentation scams, it is important to be vigilant and cautious when providing personal information or making payments. It is also crucial to work with licensed and reputable insurance agents and companies and to carefully review and understand the terms of any insurance policy before purchasing it.

Fake policies

In some cases, scammers may even set up an entire fake insurance company, complete with a professional-looking website and fake customer reviews. They may use high-pressure sales tactics to push potential victims into purchasing their fake policies. Unfortunately, the scam may only be discovered when the policyholder dies and their beneficiaries try to claim the payout, only to find that the policy was never real.

To avoid falling victim to fake policy scams, it is crucial to verify the agent's and insurance company's credentials. Check that the agent is licensed by contacting your state's insurance department and confirm that the insurance company is legitimate and properly licensed. Be cautious if you are asked to pay in cash or directly to the agent instead of the insurance company. Always review the policy documents carefully and understand the terms and conditions before purchasing any insurance policy.

Identity theft

Life insurance fraud is a $70 billion crime per year, and identity theft is a significant component of this. Identity theft occurs when scammers pose as life insurance agents or representatives to steal personal information and commit fraud. This can include social security numbers, banking information, and credit card numbers.

• Beneficiary Scam: Scammers may claim that you are the beneficiary of a deceased person's life insurance policy and request your social security number to release the payments.
• Overdue Payment Scam: They might inform you that your policy premium payment is overdue and ask for financial details to process the payment.
• Policy Cancellation Scam: Scammers may tell you that your life insurance policy has been cancelled and request your personal information to process the cancellation or reinstatement.
• Policy Change Scam: They might claim that your policy terms have changed and need to confirm your identity before discussing the changes.
• New Policy Scam: Scammers might notify you that you have been designated as a beneficiary of a new policy and require your approval and confirmation.
• Verification Scam: They might establish a new policy in your name and then contact you to reconfirm the policy terms, using this as an opportunity to gather your personal information.

To protect yourself from identity theft scams:

• Be suspicious of unsolicited contacts and always validate the identities of individuals and their claims.
• Ask detailed questions about the case presented to you and follow up with more inquiries.
• If you receive a call, ask for a callback number and call them back after verifying their company name, contact name, and location.
• For fax or email communications, check the sender's information and perform a free reverse lookup to confirm their identity.
• If you meet a company representative in person, ask for ID and a business card, then verify the information online.
• Never provide personal or financial information to unsolicited contacts.
• Review your policy details regularly to ensure no unauthorized changes have been made.

Death fraud

The "Canoe Man" Case

One notable example of death fraud is the case of John Darwin, often referred to as the "Canoe Man." In 2002, Darwin faked his death during a canoeing trip in the North Sea. His wife claimed the life insurance payout, and Darwin lived in hiding for five years. However, their scheme unravelled when Darwin was discovered alive and well in Panama. Both Darwin and his wife were convicted of fraud and served prison sentences.

Claims Fraud

Claims fraud, or death fraud, can also occur when a beneficiary kills the policyholder to collect the payout. In addition to murder charges, the guilty party would face punishment for attempting to profit from the murder. If the policyholder is killed by a beneficiary, the payout goes to the contingent beneficiary or the estate.

Staging a Death

In some cases, an individual may fake the death of an insured person. For instance, Brandi L. Browning pleaded guilty to wire fraud after falsely claiming to be the beneficiary of a pending life insurance settlement worth $250,000, even though the policyholder was still alive. She offered to sell her "right" to the settlement for a reduced amount and provided falsified documents to facilitate the scam.

Murder for Profit

There have also been instances where individuals plot or commit murder to cash in on the victim's life insurance policy. In one case, Cory Martin from Queens, New York, was charged with murder-for-hire and conspiracy to commit murder-for-hire. Martin and a co-conspirator had obtained a life insurance policy in the victim's name and made premium payments via money order and a debit card in the victim's name.

Frequently asked questions