How to avoid fraud with life insurance – an adviser to Forbes

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A Minnesota man was found dead in the Republic of Moldova, along with his passport and other identity documents. His wife traveled to Moldova, confirmed his identity and received $ 2 million in life insurance. Two years later, their son found his father living abroad under a pseudonym and enjoying his share of income from life insurance.

This may sound like a Hollywood script, but it did happen.

In October 2011, Igor Vorotinov falsified his death and shared the life insurance payment with his wife Irina. After an anonymous signal and years of investigation, the Federal Bureau of Investigation (FBI) finally arrested Vorotinov in 2018. He pleaded guilty and was sentenced to 41 months in prison. His wife and son had already pleaded guilty to involvement in the fraud. They were sentenced to 37 months in prison and two years probation, respectively.

Not all life insurance scams have that much drama. Some are as simple as an unscrupulous agent who collects your premium payments or someone who lies in their life insurance application. But this is an expensive 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 need to know about.

Shadow agents and simulators

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 who attack unsuspecting customers.

Premium deviation

fraud: The FBI says the most common form of insurance fraud is the diversion of premiums, which is the misappropriation of insurance premiums. In principle, the insurance agent collects your money for insurance premiums, but keeps it to himself. The agent may even send you fake documents to make it look like everything is legal.

For example, on August 26, 2021, an insurance agent in Pensacola pleaded guilty to charges of wire fraud and money laundering related to the sale of fraudulent insurance policies and the collection of nearly $ 5 million in insurance premium payments.

How to avoid first-class deviation:

  • Contact your state insurance department to make sure the agent is licensed.
  • Get all the official documents related to your coverage, including policy, approvals and declarations.
  • If you pay by check or money order, make sure it’s done to the insurance company, not the individual agent or their business. Always ask for a receipt.

Related: What happens if an insurance agent steals your premium payments?

Transfer of fees

fraud: An agent persuades you to withdraw cash or take the redemption value of your permanent life insurance to buy more life insurance or change your life insurance policies. While the agent receives a commission, your new coverage may not be better than your old coverage and may be more expensive.

How to avoid transferring fees: Don’t buy more life insurance and don’t change your life insurance policies without fully understanding the costs, benefits and limitations.

forgery

fraud: An insurance agent falsifies your signature to make changes to your policy (such as identifying as a beneficiary) or takes out a policy without your knowledge to collect commissions.

For example, on January 25, 2022, an insurance agent in California was sentenced to 150 days in prison by dismissal and sentenced to pay $ 18,252 in restitution. Investigators found that Saul Hinohosa had written 15 fraudulent funeral insurance policies and 13 fraudulent life insurance policies. Hinohosa uses the identities of his former insurance clients to take out policies without their knowledge. He raised about $ 18,000 in commissions.

How to avoid fake scams: It is difficult to know when something was done without your knowledge. Only work with licensed insurance agents and review your policies on an annual basis to confirm that no changes have been made.

Other types of fraud in life insurance agents

  • Ghost Brokers: These are fraudsters who pretend to be insurance agents and sell fake insurance policies. They will often require cash or direct payments. Victims believe they have legal life insurance, but the fraud will not come to light until their beneficiaries try to sue. Ghostly brokers can advertise cheap insurance on social media or other sites.
  • Fake contacts: These scammers impersonate insurance agents or representatives of your insurance company and will contact you by phone, text message or email and say that there is a problem with your life insurance policy. They may ask for money, your social security number and other information.
  • Beneficiary fraud: A fraudster contacts you and says that you are a beneficiary of a life insurance policy from someone who has recently died, but his outstanding premium prevents him from paying you a payment. The scammer will ask you to pay the rest. Fraudsters can search obituaries for new victims.

Doubtful candidates and opportunistic beneficiaries

Shadow life insurance agents are not the only ones to blame for the cost of life insurance fraud. Here are some examples of scams committed by life insurance applicants and bad actors who want to cash in as beneficiaries.

Misrepresentation of policy

fraud: One of the most common frauds with life insurance is fraud with applications, also called misrepresentation of the policy. In this scam, the fraudster knowingly provides false information in the life insurance application, such as lying about his health history or concealing other facts. The goal is to qualify for coverage or lower life insurance premiums.

Potential consequences of policy misstatement include:

  • Rejection of an application
  • Premium increase
  • Dismissal of the claim
  • Policy cancellation
  • Prosecution

Related: How life insurance companies get information about you

Fake deaths

fraud: Pseudocide is a fake or staged death. Pseudocide is sometimes used as a means of cashing in on life insurance payments. In some cases, such as Igor Vorotinov, the policyholder falsifies his own death so that their beneficiary can collect. In other cases, someone may falsify the death of an insured person.

For example, on September 1, 2021, a Georgian woman pleaded guilty to corporal fraud to a life insurance company after falsely claiming to have received a $ 250,000 life insurance payment in the event of a friend’s death. The problem was that her boyfriend was still alive.

Court documents show that Brandi L. Browning contacted a life insurance company and stated that she was the beneficiary of a pending life insurance claim. She offered to sell her “right” to life insurance worth $ 250,000 for $ 217,500 and provided forged documents to facilitate fraud. Browning faced 20 years in prison, followed by three years of controlled release, a $ 250,000 fine and mandatory restitution.

Murder for profit

fraud: This horrific scam is exactly what it sounds like: Someone is planning or committing murder to cash in on the victim’s life insurance policy. Although this type of life insurance is not common, it does happen.

For example, in October 2021, a man from Queens, New York, was charged with murder for rent and conspiracy to commit murder for rent in connection with an alleged scheme to collect death benefits from the victim’s life insurance.

A year before the victim’s murder in 2017, Corey Martin and a fraudulent accomplice obtained a life insurance policy in the victim’s name. They also made premium payments by money transfer and debit card in the victim’s name. If convicted, Martin will face life in prison and possibly the death penalty.

How To Report A Fraud With Life Insurance

Here are some ways to report fraud with life insurance:

  • Fraud agencies. Most states have a fraud office that investigates insurance fraud. Here’s how to contact your country’s insurance department.
  • Insurance companies. Contact your insurance company directly if you think you have been deceived.
  • National Bureau of Insurance Crimes (NICB). NICB is a non-profit organization that partners with insurance companies and law enforcement agencies. You can report fraud online or by calling 800-TEL-NICB (800-835-6422).
  • National Association of Insurance Commissioners (NAIC). You can file a complaint with the NAIC online fraud reporting system.

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