The Red Flags Of Life Insurance Fraud

The Effects of Life Insurance Fraud

Besides the obvious financial gain, emotions like heartbreak, parental responsibility, anger, and depression can also drive someone to commit life insurance fraud. These intense emotions can lead to drastic actions. To understand why someone would resort to such extremes, it’s important to recognize the major life events that could trigger such behavior.

87.5% of life insurance companies said they limited their offerings based on the risk of fraud

Life Insurance Fraud Cases

Let’s talk about the two most common types of life insurance fraud:

Both types of fraud are serious threats, requiring insurers to stay vigilant to protect themselves and their honest customers.

Community Fraud Insurance

Think of community fraud in life insurance like a group effort. A gathering of people who conspire to fake their own or someone else’ death for an insurance payout.

Imagine a close-knit community where several families have been struggling financially. They come up with a plan to fake the deaths of some of their members to claim life insurance payouts.

To make the scheme more convincing, they may even hold fake funerals and memorial services, inviting members of the community to attend. They use these events to further perpetuate the lie that the individuals have passed away.

In some cases, the payouts can amount to substantial sums of money, providing financial relief to the families involved.

Life insurance fraud ranks as the second most expensive type of insurance fraud nationwide, resulting in annual losses of $74.4 billion.

If the insurance company is prepared they uncover the fraud through further digging and partnering with a fraud prevention professional.

Anti Selection Fraud

Anti-selection fraud can be thought of as soft fraud but this seemingly ‘harmless’ form of fraud can have a domino effect on the industry as a whole. This fraud is characterized by when someone hides their true health or lifestyle to secure a lower premium.

 Let’s delve into a detailed real-life example of anti-selection fraud in life insurance:

Imagine your claimant John, who is a smoker but wants to secure a life insurance policy at a lower premium. Knowing that smoking increases the risk of various health issues and can lead to a shorter lifespan, John decides to withhold this information when filling out his life insurance forms – he only smokes on the weekends or when he’s really stressed so he figures it doesn’t count.

When John fills out his life insurance application, he intentionally checks the box indicating that he is a non-smoker. As a result, John’s lie can secure a life insurance policy at a lower premium, as non-smokers generally pay less for coverage.

Unfortunately, a few years later, John passed away due to complications from smoking-related health issues. When his family files a claim with the insurance company, the truth about John’s smoking habit comes to light during the claims investigation. The insurance company discovers that John committed anti-selection fraud by misrepresenting his smoking status to secure a lower premium.

As a result, the insurance company denies the claim, citing the fraudulent misrepresentation on John’s part. This leaves all parties at a loss. John was contributing money to his life insurance for all those years, which ultimately didn’t benefit him. His family is left with no help and the insurer has lost out on 20,000 worth of premiums.

This example illustrates how anti-selection fraud can have serious consequences for the insurance company and the policyholder’s loved ones. Honesty and transparency when applying for life insurance are a must to avoid such repercussions. Unfortunately, people will lie and it is up to a knowledgeable adjuster with a keen eye for fraud to stop any fraudulent claims from getting through.

Tools for Life Insurance Fraud Detection

To quote the Reinsurance Group of America, “Trust, but verify! Verify, but validate! Don’t be afraid to ask questions or ask for additional evidence – especially when you see red flags.”

Many companies are willing to help advance and invest in fraud prevention efforts when they know what technologies are available to help them. Part of your job is to stay up to date with the available tools so you are better positioned to protect

We can’t share all of our clever tools with you just yet but here’s a sneak peek:

The Internet

This is an obvious resource, but often the simplest and most readily available tool is underused but can be the most effective.

Double-checking a client’s story is your duty. It isn’t about trust; it is about verification. When red flags appear, using the internet allows you to search for:

• Obituaries in local newspapers
• Doctors or other medical specialists the claimant provided
• Hotels
• Accident sites
• Weather conditions
• Aside from a standard Google search, there are other resources to consider adding to your toolkit:
• Black Book Online is a free public search record with deep insights available for criminal history, business ownership, or property ownership records
• Zillow is often overlooked, but it can give you quick data on home value estimates
• Celebrity Net Worth provides information on high-net-worth individuals
• The FAA Registry can confirm if your client is a licensed pilot
• The Instant Checkmate Standard Report provides free and available-for-purchase information that includes birth dates, phone numbers, address history, relatives, arrest records, social media profiles, and even civil judgments, business affiliations, or if they own any watercrafts

As you move through the process of information discovery, remember the growing number of tools and resources available to you. As you learn of new technologies and systems to help your company prevent fraud, consider recommending them. And if you have any questions along the way – our investigations team is here to explain everything.

Interested in learning more about this topic? read our most recent life insurance blogLife Insurance Fraud: Types and Implications or register for one of our upcoming continuing education webinars.