Life insurance fraud is an eyesore for both life insurance companies and life insurance customers. Both parties have been guilty of life insurance fraud and will be again – especially since, unfortunately, fraud appears to be on the rise by most statistical measures.
Research by The Coalition Against Insurance Fraud concludes that life insurance fraud perpetrated by all parties costs the average family $1650 per year and increases life insurance premiums by 25%.
Life insurers are often guilty of insurance fraud in the form of their agents doing “churning”. This is where the agent seeks to cancel your existing life insurance policy and replace it with a new policy that is paid for from the “juice”, or cash value, in your existing policy. Agents do this to earn more commissions for themselves without having to look for new business prospects. The confusion can result in increased premiums for a customer and clearly cost them more than their cash value.
Another insurance fraud practiced by agents, however, is called “windowing”. This is where, since he is unable to obtain the signature of a client or applicant 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 for the light to shine, and trace. over the signature with a pen in order to forge the signature of the client or the applicant.
When the big name insurance companies have their agents do bad things it makes big news, but the fact is that the public is far more guilty of insurance fraud than the companies are. . And of course making false claims is what they do most, which is why all life insurance death benefit payout claims are subject to investigation.
But falsely stating background or income information is another form of insurance fraud that consumers often engage in. They may be embarrassed about their medical history or income, or they may realize that if they tell the truth they will have their coverage reduced or their premiums will be very high. If a life insurance company finds out that someone has lied on its application it has the right not to pay the claim or not to 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 vast investigative 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.
Save all your life insurance paperwork, including getting receipts for every penny you give your agent, and never ignore any notifications from your life insurance company.
Life insurance is never free and it is not a pension plan, although certain policies can indeed become self-funding – but they never start out that way.
Never buy coverage that you strongly feel is unnecessary, never allow yourself to be pressured, and never borrow to finance life insurance.
Although it can be part of an investment portfolio, the number one role 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.
