Life Insurance: Friend Or Foe?

Life insurance is a type of insurance that pays a death benefit to the policyholder's beneficiaries in the event of their death. It is not a scam, but there are some scams associated with it. Life insurance exists in two distinct categories: permanent life insurance, such as whole or universal life insurance, and term life insurance. Permanent life insurance is designed to provide coverage for your entire lifetime, whereas term life insurance is only for a set period. While life insurance can be a valuable financial tool, it is not suitable for everyone. For instance, if you have no dependents or a tight budget, life insurance may not be necessary. Additionally, there are bad actors who use life insurance scams by preying on people's fears and worries about protecting their families if they die. Common life insurance scams include requests for personal information or money, pressure to buy or switch policies, and dishonest advertised rates. It is important to be vigilant and aware of the signs of potential scams to protect yourself and your finances.

Aggressive sales tactics and misleading marketing

Be wary of policies that seem too good to be true, promise unrealistic results, or pressure you to make a decision without giving you ample time to consider your options. For example, an agent may offer a low-premium plan without disclosing that it is for a lower amount of coverage than you expected. While legitimate life insurance representatives often work on commission, they should still have your best interests in mind.

Scammers may also use misleading advertising to lure in potential victims, offering extremely low rates that seem suspicious. These advertised rates may be misleading, as the company could be using them to attract new customers who are unaware of the scam. Once you apply, they may reject you and offer a more expensive plan, hoping that you will accept rather than go through the hassle of applying elsewhere.

Additionally, be cautious of agents who pressure you to buy or switch policies frequently. They may recommend borrowing money from your existing plan to purchase additional coverage, even if you don't need it. Their motive is often to increase their own salaries with each enlargement of your coverage.

Hidden fees and confusing policy terms

You should also be aware of the costs you will incur. In addition to paying regular premiums to maintain coverage, there may be additional costs. If an agent surprises you with fees beyond the premium payment or asks you to pay the premium directly to them instead of the insurance company, the chances are high that it is not a legitimate insurance plan.

Be wary of policies that seem too good to be true, promise unrealistic results, or do not give you enough time to make a decision. For example, an insurance agent might offer you an enticingly low-premium plan without telling you that it is for a lower amount of coverage than you expected. Legitimate life insurance representatives are often paid on commission, but because they are in the business of working with people and supporting customers, they should keep the customer's best interests in mind.

It is important to do your research before buying insurance. Ask yourself: Have I heard of this insurance company? Why did this company choose me? Contact the insurance division of your state government. If the insurance company and the representative are genuine, they will be on the state's file. It is against the law to operate an insurance firm without a state license.

Dishonest life insurance agents and illegal practices

Life insurance is a regulated industry, and while it is not a scam, there are dishonest life insurance agents and illegal practices that you should be aware of.

Premium Diversion

The FBI states that the most common form of insurance fraud is premium diversion, which is the embezzlement of insurance premiums. In this scam, the insurance agent collects your money for insurance premiums but keeps it for themselves. They may even send you fake documents to make it look like everything is legitimate. To avoid this scam, always contact your state department of insurance to ensure the agent is licensed, get all official documents associated with your coverage, and make your checks out to the insurance company, not the individual agent.

Churning and Twisting

Churning and twisting are unethical and illegal practices in the insurance industry that can harm policyholders. In both practices, an insurance agent or broker uses deceptive tactics to convince a policyholder to surrender their existing life insurance policy and replace it with a new one, either from the same carrier or a different one. The new policy offers similar or inferior benefits, and the agent earns a commission on the sale. Churning and twisting can lead to unnecessary costs, disruptions in coverage, and loss of policy benefits. To protect yourself, be cautious when agents advocate for policy replacements, especially if the proposed changes seem unwarranted or the benefits of your current policy are being downplayed.

Forgery

In this scam, an insurance 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 can be difficult to know when something has been done without your consent, so it's important to only work with licensed insurance agents and review your policies annually to confirm no changes have been made.

Ghost Brokers

Ghost brokers are fraudsters who pose as insurance agents and sell fake insurance policies. They often request cash or direct payments, and victims believe they have legitimate life insurance until their beneficiaries try to file a claim. To avoid this scam, be wary of cheap insurance advertised on social media or other sites.

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, your Social Security number, or other personal information. Be cautious when providing sensitive information and always verify the identity of the person contacting you.

Beneficiary Scam

In this scam, a fraudster contacts you, claiming you are the beneficiary of a life insurance policy from someone who has recently passed away. They inform you that an outstanding premium balance is preventing them from issuing a payout and ask you to pay the balance. To avoid this scam, never send money to someone claiming you are a beneficiary without first verifying their identity and the existence of the policy.

Remember, while life insurance is not a scam, there are dishonest agents and illegal practices out there. Always do your due diligence, be cautious of aggressive sales tactics and misleading marketing, and compare quotes across multiple companies to make an informed decision.

Targeting older citizens

While life insurance is not a scam, older citizens are often targeted by criminals and scammers. Here are some ways in which scammers target older citizens:

False Sense of Urgency

Scammers often try to create a false sense of urgency to pressure their targets into making quick decisions without giving them time to think or consult others. They might pretend to work for an insurance company and claim there is a problem with the insurance policy, such as an issue with the target's Social Security number or a missing payment. They might also pretend that the target is in line to acquire money from a loved one's insurance but that there is an outstanding balance that needs to be paid immediately.

Bargains That Are Too Good to Be True

Scammers often present offers that seem too good to be true, such as extremely low insurance rates. These advertised rates may be misleading, as the company could be using these prices to attract potential customers who are unaware of the scam. Once the target applies and is rejected, they offer a plan at a higher rate, hoping that the target will accept rather than go through the hassle of applying to another company.

Pressure to Buy or Switch Policies

Scammers might target individuals with whole life insurance plans that have built up a significant cash value. They might pressure the target to use that money to increase their coverage or recommend borrowing money from their whole life plan to buy extra coverage. The motive behind this is that agents can increase their salaries each time the target enlarges their coverage.

Fake Beneficiary Scam

In this scam, criminals pretend that the target is in line to receive money from a long-lost relative's life insurance policy or inheritance. They will try to get the target's personal and financial information or ask for money to release the non-existent funds.

Dishonest Agents and Illegal Practices

Some life insurance agents may engage in dishonest practices, such as providing misleading information or promising unrealistic results. They may also engage in illegal activities, such as asking for direct payments instead of directing payments to the insurance company.

False contracts

Another form of false contracts involves scammers creating fake life insurance policies and documents that resemble those of legitimate insurance companies. They may approach you with offers of insurance products or services that seem too good to be true, pressuring you to make a quick decision without consulting your family or friends. To avoid falling victim to these scams, it is important to research insurance companies before purchasing a policy and to verify the authenticity of any contracts or documents you receive.

Additionally, be cautious of individuals claiming to be beneficiaries of a long-lost relative's life insurance policy or inheritance. They may attempt to obtain your personal or financial information, such as your Social Security or bank account numbers, with the promise of splitting the proceeds. Remember that life insurance companies are required by law to have a state license, so you can verify their legitimacy by checking with the insurance division of your state government.

Frequently asked questions