How to Avoid Life Insurance Fraud – Forbes Advisor
Editorial Note: We earn a commission on partner links on Forbes Advisor. Commissions do not affect the opinions or ratings of our editors.
A Minnesota man has been found dead in the Republic of Moldova, along with his passport and other identification. His wife traveled to Moldova, confirmed her identity and received $2 million in life insurance. Two years later, their son found his father living abroad under an alias and benefiting from his share of the life insurance proceeds.
It may sound like a pitch for a Hollywood script, but it really happened.
In October 2011, Igor Vorotinov faked his death and split the life insurance payout with his wife, Irina. After an anonymous tip and years of investigation, the Federal Bureau of Investigation (FBI) finally caught up with Vorotinov in 2018. He pleaded guilty and was sentenced to 41 months in prison. His wife and son had already pleaded guilty to their participation in the scam. They were sentenced to 37 months in prison and two years probation, respectively.
Not all life insurance scams are so dramatic. Some are as simple as an unscrupulous agent pocketing your premiums or someone lying on their life insurance application. But it’s a costly problem. The total cost of insurance fraud (excluding health insurance) is more than $40 billion a year, according to the FBI. This costs the average family in the United States between $400 and $700 a year in increased insurance premiums.
Here are some life insurance scams you should know about.
Shady agents and impersonators
Almost all life insurance agents have a common goal: to sell you a life insurance policy that meets your specific needs. But there are a handful of bad actors preying on unsuspecting customers.
The scam: The FBI says the most common form of insurance fraud is premium embezzlement, that is, embezzlement of insurance premiums. Typically, the insurance agent collects your money for insurance premiums but keeps it for themselves. The agent may go so far as to send you fake documents to give the impression that everything is legitimate.
For example, on August 26, 2021, a Pensacola insurance agent pleaded guilty to wire fraud and money laundering charges related to selling fraudulent insurance policies and collecting nearly $5 million. dollars in insurance premium payments.
How to avoid premium diversion:
- Contact your state department of insurance to make sure the agent is licensed.
- Obtain all official documents associated with your coverage, including the policy, endorsements and declarations.
- If you are paying by check or money order, make sure it is made payable to the insurance company, not the individual agent or their business. Always ask for a receipt.
Related: What if an insurance agent steals your premium payments?
The scam: An agent convinces you to withdraw cash value or take cash value from your permanent life insurance policy to buy more life insurance or switch life insurance policies. Although the agent receives a commission, your new coverage may not be better than your old coverage, and it could be more expensive.
How to avoid fee churning: Don’t buy more life insurance or switch life insurance policies without fully understanding the costs, benefits and restrictions.
The scam: An insurance agent forges your signature to make changes to your policy (such as naming himself as beneficiary) or underwrites a policy without your knowledge to collect commissions.
For example, on January 25, 2022, a California insurance agent was sentenced to 150 days in jail through a work release and ordered to pay $18,252 in restitution. Investigators discovered that Saul Hinojosa had taken out 15 fraudulent funeral insurance policies and 13 fraudulent life insurance policies. Hinojosa used the identities of its former insurance clients to underwrite policies without their knowledge. He earned about $18,000 in commissions.
How to avoid counterfeit scams: It’s hard to tell when something has been done without your knowledge. Work only with licensed insurance agents and review your policies on an annual basis to confirm that no changes have been made.
Other types of life insurance agent scams
- Ghost Brokers: They are fraudsters who pose as insurance agents and sell fake insurance policies. They often ask for money or direct payments. Victims think they have a legitimate life insurance policy, but the scam will only come to light when their beneficiaries try to file a claim. Ghost brokers may advertise cheap insurance on social media or other sites.
- False contact: These scammers pose as insurance agents or representatives of your insurance company and will contact you by phone, text or email to tell you that there is a problem with your life insurance policy. They may ask you for money, your social security number, and other information.
- Recipient scam: A scammer contacts you and tells you that you are the beneficiary of a recently deceased life insurance policy, but an unpaid premium balance prevents him from issuing you a payment. The scammer will ask you to pay the balance. Scammers can browse obituaries to target new victims.
Doubtful applicants and opportunistic beneficiaries
Shady life insurance agents aren’t solely responsible for the cost of life insurance fraud. Here are some examples of scams perpetrated by life insurance applicants and bad actors looking to cash out as beneficiaries.
Misrepresentation of policy
The scam: One of the most common life insurance scams is claim fraud, also known as misrepresentation. In this scam, the fraudster knowingly provides false information about the life insurance application, such as lying about their medical history or concealing other facts. The goal is to qualify for coverage or reduced life insurance premiums.
Potential consequences of policy misrepresentation include:
- Rejection of application
- Premium increase
- Refusal of claim
- Cancellation of the policy
- Legal pursuits
Related: How life insurance companies get information about you
The scam: Pseudocide is a fictitious or staged death. Sometimes pseudocide is used as a means of collecting payment for life insurance in the event of death. In some cases, as with Igor Vorotinov, an insured fakes his own death so his beneficiary can collect. In other cases, someone could fake the death of an insured.
For example, on September 1, 2021, a Georgia woman pleaded guilty to wire fraud for defrauding a life insurance settlement company after falsely claiming she was the beneficiary of a $250,000 payout in the event. life insurance on a friend’s policy. The problem was that her friend was still alive.
Court documents show Brandi L. Browning contacted a life insurance settlement company and said she was the beneficiary of a pending life insurance claim. She offered to sell her “right” to a $250,000 life insurance settlement for $217,500 and provided falsified documents to facilitate the scam. Browning faced 20 years in prison, followed by three years of supervised release, a $250,000 fine and mandatory restitution.
Murder for profit
The scam: This horrible scam is exactly what it sounds like: someone plots or commits murder to profit from the victim’s life insurance policy. Although this type of life insurance scam is not common, it does happen.
For example, in October 2021, a Queens, New York man was charged with murder-for-hire and conspiracy to commit murder-for-hire related to an alleged scheme to collect benefits. of death on the victim’s life insurance policy.
A year before the victim’s murder in 2017, Cory Martin and a co-conspirator fraudulently obtained a life insurance policy in the victim’s name. They also made bounty payments by money order and a debit card in the victim’s name. If convicted, Martin faces life imprisonment and possibly the death penalty.
How to report life insurance fraud
Here are some ways to report life insurance fraud:
- Fraud offices. Most states have a fraud bureau that investigates insurance fraud. Here’s how to contact your state’s Department of Insurance.
- Insurance companies. Contact your insurance company directly if you believe you have been the victim of fraud.
- National Crime Insurance Bureau (NICB). The NICB is a non-profit organization that partners with insurance companies and law enforcement. You can report online fraud or by calling 800-TEL-NICB (800-835-6422).
- National Association of Insurance Commissioners (NAIC). You can file a complaint on the NAIC Online Fraud Reporting System.
Compare life insurance companies
Compare policies with the 8 major insurers