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Life insurance fraud is a black eye on both life insurance companies and life insurance customers. Both sides have been and will be guilty of life insurance fraud again – in particular, sadly, fraud is on the rise by most statistical measures.
Research by the non-profit The Coalition Against Insurance Fraud concludes that life insurance fraud perpetrated by all parties costs an average of $1650 per year and increases life insurance premiums by 25%.
Life insurers are often guilty of insurance fraud by posing as their agents “churning”. This is where the agent wants to cancel your existing life insurance policy and replace it with a new policy that is paid for by the “juice,” or cash value, of your existing policy. Agents do this to earn more commission for themselves without looking for new prospects for business. Churning can result in inflated premiums for the customer and clearly cost them out of their cash value.
However, another insurance fraud perpetrated by agents is called “windowing”. This is where, being unable to obtain the customer’s or applicant’s signature on a required document, when the signature is already elsewhere, the agent places a signed document behind the unsigned document, with the light shining through the window. Presses against, and traces over the signature with pen to forge the signature of the subscriber or applicant.
It makes big headlines when big name insurance companies have their agents do bad things, but the fact is that the public is far more to blame for insurance fraud than the companies themselves. And of course making false claims is what they do the most, which is why all claims on life insurance death benefit payments are subject to scrutiny.
But falsifying background or financial income information is another form of insurance fraud that is often perpetrated by consumers. They may be embarrassed by their medical history or income, or they may feel that if they tell the truth, their coverage will be reduced or their premiums will be too high. If a life insurance company finds that someone has lied on their application, they have the right not to pay the claim or pay the full death benefit, depending on the circumstances and the policy.
But there are some things life insurance buyers can do to protect themselves from insurance fraud, since they don’t have as many investigative resources as life insurance companies.
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 of your life insurance paperwork, including receipts for every penny you owe your agent, and never ignore any information from your life insurance company.
Life insurance is never free and it is not a pension plan, although some policies may actually be self-funding–but they never start out that way.
Never buy coverage you think is unnecessary, never overburden yourself and never borrow to pay for life insurance.
While it may be part of an investment portfolio, the number one role of life insurance is protection against the unexpected — and most people don’t need life insurance until their later years. It is intended to be temporary.
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