Life Insurance: Another Check In The Mail?

Life insurance is a contract between a policyholder and an insurance company that pays out a death benefit when the insured person passes away. There are several kinds of life insurance, including term and permanent plans. When purchasing life insurance, it's important to consider how much coverage you need, whether a term life or permanent life policy makes more sense, what you'll pay for premiums, and which optional coverages to include. Life insurance premium costs depend on factors such as the type of policy, the amount of the death benefit, the riders you add, and your overall health. Understanding how the process works, from buying life insurance to filing a claim, can help you proceed with confidence.

How to spot a scam

Life insurance scams are a common way for criminals to separate you from your money and personal information. While anyone can be a victim, older citizens looking to get or update their life insurance coverage are often targeted. Here are some ways to spot a scam:

Request for Personal Information or Money

Criminals may pretend to work for your insurance company and contact you about a problem with your insurance. For example, they may claim there's an issue with your Social Security number or that they never received your last payment. They will ask you to provide personal information, such as your Social Security number or credit card number, to resolve the issue.

Fake Beneficiary Scam

If you've recently lost a loved one, you may be targeted by this scam. Criminals will pretend that you are in line to acquire money from your loved one's insurance policy, but there is an outstanding balance that needs to be paid first. Do not let the prospect of receiving money cloud your judgment. Contact your loved one's insurance company directly to verify the information.

Fake Life Insurance Policy

Con artists can create fake documents or websites that look like legitimate insurance companies. They may offer you a policy that is too good to be true, or you may not have heard of the company before. Always research the company and agent before purchasing a policy. Check with your state insurance department to ensure they are licensed to sell insurance in your state.

Pressure to Buy or Switch Policies

A dishonest insurance agent may pressure you to use the cash value of your existing policy to buy additional coverage or switch to a new policy. They may recommend borrowing money from your current plan to buy extra coverage, even if you don't need it. Agents can increase their salaries by enlarging your coverage, so be cautious of agents pushing for these changes. Ask for documents showing how the change would benefit you, and only work with trustworthy agents who provide all the necessary paperwork.

Dishonest Advertised Rates

Some life insurance companies advertise extremely low rates to attract potential customers. However, these rates may be misleading, as only a small percentage of people qualify for them. Once you apply, you may be rejected and offered a plan at a much higher rate. Be suspicious of advertised rates that seem too good to be true, and always read the fine print to understand the terms and conditions.

In general, be cautious of unsolicited emails, calls, or letters regarding your life insurance. Do not click on suspicious links or provide sensitive information to unknown sources. Verify the legitimacy of any company or agent before doing business with them, and always use common sense when evaluating offers.

What to do if you're a victim of a scam

If you think you've been the victim of a life insurance scam, it's important to act quickly to minimise any damage and to help catch the scammers and protect others. Here are some steps you can take:

• Gather information: Collect as much information as possible, including emails, texts, voicemails, phone numbers, letters, details of the fraud, and how much money you lost.
• Report the fraud: Contact your state's consumer protection office, your state fraud bureau, the National Insurance Crime Bureau, and the Federal Trade Commission.
• Contact your financial institution: If you've already paid the scammer, you may be able to get your money back by acting quickly. Contact your bank or credit card company and tell them the transaction was fraudulent. They may be able to reverse the payment, depending on their policies.
• Check your credit report: To stem the damage from potential identity theft, check your credit report for suspicious activity, such as new accounts you don't recognise. You can get a free copy of your credit report from each of the three credit bureaus (Experian, TransUnion, and Equifax) at AnnualCreditReport.com.
• Place a fraud alert: Placing a fraud alert on your credit report can help protect you from credit fraud. Change the passwords for all your online accounts and consider adding two-factor authentication to important accounts.
• Report identity theft: If your identity has been stolen, report it at the Federal Trade Commission's identity theft reporting website. Then, contact your bank or credit union, creditors, and other financial service providers. You may also want to get law enforcement involved.
• Be vigilant: Monitor your financial accounts regularly for any signs of suspicious activity.
• Cancel the policy: If you've signed with a legitimate company, you may be able to exit the agreement without penalty, especially if you're still in the free look period of your policy. If you're beyond the free look period, check the cancellation policy. You likely won't get a refund of premiums paid, but you should be able to exit without penalty.

Remember, it's important to act quickly to minimise the potential damage caused by a life insurance scam. Don't hesitate to report the incident and take the necessary steps to protect yourself.

How to avoid becoming a victim of a scam

Life insurance is meant to provide financial security for your family in the event of your death. However, falling for a life insurance scam can have the opposite effect. Here are some ways to avoid becoming a victim of a scam:

Be Wary of Unsolicited Communication

Don't click on suspicious links or attachments in unsolicited texts or emails. If you receive a call from someone claiming to represent your insurance company, hang up and contact the company yourself using the contact information on your insurance documents. Never give out personal or financial information to unsolicited contacts.

Verify Information

If you receive an unsolicited email requesting information, do not reply. If it claims to be from your insurance company, call the company's customer service hotline or your financial representative instead. If they do need information, you can provide it more safely in person or over the phone.

Be Suspicious of Unexpected Payouts

Criminals may say you were named as the beneficiary on the life insurance policy of someone who has recently passed away, but that an outstanding premium balance is preventing them from issuing payment. This is a common scam, especially if you've recently lost a loved one. Check with your state insurance department; if the insurance company is legitimate, contact them directly using the information on their website. If possible, go through any paperwork your loved one left behind to check for life insurance policy information.

Be Aware of Common Scams

Common life insurance scams include false policy issues, surprise beneficiary claims, fake websites, unrealistic teaser rates, and dishonest online quotes to deceive individuals seeking coverage. Criminals might pretend to work for your insurance company and claim there's a problem with your policy or that they need your personal information, such as your Social Security number, to clear up a mistake. They might also claim they never received your last payment and that they need it immediately to prevent cancellation.

Do Your Research

Always do research before handing over personal information or money. Deal only with familiar insurance companies who list several ways to contact the office, such as a phone number, email address, and physical address. Contact the insurance division of your state government; if the insurance company and the representative are genuine, they'll be on the state's file. It's against the law to operate an insurance firm without a state license.

Be Mindful of Offers That Seem Too Good to Be True

Be cautious of offers that seem too good to be true, like a surprise insurance payout or a chance to cut your life insurance premiums in half. If an offer sounds too good to be true, it probably is. Good deals on life insurance are available, but beware of pitches for alluring policies from individuals you do not know and did not contact. According to the National Association of Insurance Commissioners, if the premiums cited are more than 15% to 20% cheaper than the competition, it's probably a scam.

What is life insurance fraud?

Life insurance fraud occurs when an insured person, policyholder, or beneficiary is deceitful or falsifies information to benefit from a life insurance policy. This can range from intentionally withholding or misrepresenting information to full-blown life insurance scams. Common acts of life insurance fraud can be categorized based on who commits the fraud: the insured or insurance customer, or an insurance agent or impersonator.

Insured or Insurance Customer Fraud

The most common types of fraud committed by insured persons or insurance customers include:

• Forgery of ownership: When someone other than the policyholder changes the ownership or beneficiaries of a policy. This may delay a claim's processing and lead to prosecution.
• Application fraud: Knowingly providing false information, misrepresenting oneself or one's health history, or concealing material facts on a life insurance application is illegal and may be reported to the appropriate jurisdiction.
• Death fraud: When the insured fakes their death to collect their own life insurance death benefit, or when a beneficiary premeditates murder to collect the policy's payout.

Insurance Agent or Impersonator Fraud

Agent impersonators or misrepresenting agents can commit the following frauds and scams:

• Fake policies: A scammer might pose as an insurance agent to sell insurance without providing actual coverage. They may request cash or direct payments, which is a red flag since the payee for premiums should be a legitimate life insurance company.
• Identity theft: A scammer posing as a life insurance agent steals personal information such as Social Security numbers, banking information, and credit card numbers.
• Bait and switch: An insurance agent misrepresents or embellishes information to get the customer to buy what appears to be a better policy or add-on, but it doesn't actually provide additional coverage.

How to Avoid Life Insurance Fraud

To avoid becoming a victim of life insurance fraud, it is important to be vigilant and follow these tips:

• Never pay premiums directly to an agent; always pay the insurance company.
• Read the policy carefully, including the fine print, before purchasing.
• If an agent reaches out to you, contact the company they work for to verify their identity and licensing.
• Never respond to emails or texts asking for personal information; call the insurer at a known phone number to verify.
• Be cautious of unsolicited emails, verify information directly with your insurance company, and be wary of unexpected payouts.
• Consult trusted sources, such as your state's insurance department, to verify the legitimacy of a company or agent.

How to report a scam

If you've fallen victim to a life insurance scam, it's important to take immediate action to protect yourself and prevent further harm. Here are the steps you should take:

• Gather Information: Collect all relevant information and evidence related to the scam. This includes emails, text messages, voicemails, phone numbers, letters, details of the fraud, and the amount of money lost. Having detailed records will help authorities investigate the scam.
• Report to Government Agencies: Contact your state's consumer protection office or fraud unit. You can also file a report with the National Insurance Crime Bureau and the Federal Trade Commission, as they handle insurance fraud cases.
• Contact Financial Institutions: Notify your bank and credit card company about the fraud. They can help you monitor your accounts for any suspicious activity and potentially reverse any fraudulent transactions.
• Check Your Credit Report: Review your credit report for any signs of identity theft or unauthorized activity. You can obtain a free copy of your credit report from the three major credit bureaus (Experian, TransUnion, and Equifax) at AnnualCreditReport.com. Consider placing a fraud alert on your credit report for added protection.
• Change Passwords and Enable Two-Factor Authentication: Update passwords for all your online accounts, especially those associated with financial services. Additionally, enable two-factor authentication to add an extra layer of security.
• Report Identity Theft: If your personal information has been compromised, report it to the Federal Trade Commission's identity theft website. Also, inform your bank or credit union, creditors, and other financial institutions to take appropriate measures.
• Involve Law Enforcement: Depending on the severity of the scam, you may want to involve local law enforcement. They can guide you through the legal process and help track down the perpetrators.
• Seek Legal Advice: Consider consulting an experienced lawyer, especially one specializing in financial crimes. They can provide personalized advice and assist you in taking legal action against the scammers.

Remember, it's important to act quickly and comprehensively when reporting a scam. By following these steps, you can help protect yourself and others from falling victim to life insurance fraud.

Frequently asked questions