Global Courant
Life insurance fraud is a black eye for both life insurance companies and life insurance customers. Both parties have committed life insurance fraud and will do so again, especially since fraud unfortunately appears to be on the rise by most statistical measures.
Research by the nonprofit organization The Coalition Against Insurance Fraud concludes that life insurance fraud committed by all parties costs an average household $1,650 a year and increases life insurance premiums by 25%.
Life insurers are most often guilty of insurance fraud in the form of “churning” their agents. This is where the agent attempts to cancel your existing life insurance policy and replace it with a new policy that is paid for by the “juice” or cash value in your existing policy. Agents do this to earn more commissions for themselves without having to seek out new prospects for business. Churning can result in higher premiums for a customer and clearly costs them their cash value.
However, another insurance fraud practiced by agents is called “windowing”. This is where the agent, being unable to get a client’s or applicant’s signature on a necessary document, but already has that signature elsewhere, holds up a signed document behind the unsigned document, holds it against a window to let the light shine through, and trace over the signature with a pen to forge the signature of the client or applicant.
When big insurance companies let their agents do bad things, it makes big headlines, but the fact is that the public is much more guilty of insurance fraud than companies. And of course making false claims is what they do most, which is why all claims for death benefits from life insurance are investigated.
But falsely disclosing background or financial income information is another form of insurance fraud that consumers often encounter. They may be ashamed of their medical history or income, or they may realize that if they tell the truth, their coverage will be reduced or their premiums will be very high. If a life insurance company finds out that someone lied on their application, they have the right not to 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 from insurance fraud since they don’t have the great research resources that life insurance companies do.
Remember, when it comes to life insurance, if it sounds too good to be true, it probably is. There is no free lunch.
Keep all of your life insurance paperwork, including getting receipts for every penny you give your agent, and never ignore notifications from your life insurance company.
Life insurance is never free and it is not a retirement plan, although certain policies can indeed become self-funding – but they never start out that way.
Never buy coverage that you don’t think is necessary, never be pressured, and never borrow to fund life insurance.
While it can be part of an investment portfolio, life insurance’s main role is protection against the unforeseen – and most people don’t need life insurance later in life. It is meant to be temporary.
Life insurance fraud
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