by Zac Majors
Types of Insurance Fraud and How to Look Out for Them
In the US, one of the prime causes of financial instability and stress for middle-class families is insurance fraud. These scams don’t just cost families money, but also disturb their mental well-being. On average, the FBI reports that insurance frauds cost an average American family anywhere between $400 to $700 per year.
It might seem like a small figure, but let’s give some perspective to that. After hurricane Katrina, an $80 billion relief-fund was provided by the government, out of which, $6 billion was lost to insurance scams within the first 3 months.
Here, we’ll go over some of the more common types of insurance frauds that families often fall victim to and ways you can shield yourselves from them.
Types of Insurance Fraud
If you look at the different types from a bird’s eye view, you can fit the different cons into four distinct categories:
Individuals scamming insurance agents
Agents scamming families
Scammers faking accidents to make money off others’ insurance
Selling fake insurance
Consider these examples of different insurance scams for a better understanding of how they fall into the above categories:
Identity theft (2)
False claims (3/1)
Misrepresentation of insurance amount or non-payment (4)
Fake death (1)
Insurance company fraud (4)
Employee/agent fraud (2)
Preventing Insurance Fraud
The Insurance Fraud Hall of Shame is filled with a plethora of some very shameful insurance frauds. Here are some examples we borrowed from there:
Identity theft. Identities of several addicts were stolen and a health insurance claim of over $175 million was made
Medical Insurance Fraud. A mother kept collecting disability checks long after the disabled child – her son had died. The disease was faked as well.
Damages Fraud. A self-employed salon owner set fire to his salon to claim $40,000 as insurance.
This is a very common type of insurance fraud where scammers may jump in front of your car and cry for help. The goal is to claim damages from you. Some even hit your car on purpose and claim it was your fault. Break-testing is one very common way of doing so, where they break hard in the middle of the road and have a ‘staged’ witness waiting to harass you.
We recommend installing a dashcam in your car to prevent this type of insurance fraud.
Inflated claims are becoming more and more popular as suing each other has become the norm in the US. Most people try to avoid the court because of how much time gets wasted. Scammers use this to their advantage.
If someone gets injured because of you or by your pet dog, scammers may demand a sum that is much higher than what is fair.
To avoid this type of fraud, we recommend that you remain vigilant when something bad happens to someone else because of you. Perform due diligence about the damage done and try to get your advisors included as well.
Insurance Company Fraud
It’s not just regular people who commit insurance fraud but sometimes, agents or agencies are involved in scams as well. These are very elaborate scams and navigating these waters on your own might prove to be very difficult. These include:
Underwriting, and more
We recommend you check the licensure of the insurance agent or agency before signing any deals with them. Furthermore, it is also recommended that you ask around if people know about the agency.
If you ever feel like you’re in a tight corner and would like some help getting out of it, our financial life advisors are but a call away!
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