Is Life Insurance a Scam?: Everything You Need to Know

May 29, 2024 | Fraud | 0 comments

Many people are concerned about life insurance due to frequent reports of fraud. However, approximately 20% of all insurance claims are fraudulent, making 78% of consumers wary of insurance scams.

If you’ve ever asked yourself, “Is life insurance a scam?” you’re in the right place. In this post, we’ll answer this question for you, showing you what a life insurance scam looks like and what you should do to avoid and report it. 

Is Life Insurance a Scam?

No, life insurance itself is not a scam. It is a legitimate financial product designed to provide financial security for your beneficiaries after your death. Yet, it’s important to invest in insurance through reputable licensed providers.

While the product itself is valid, it’s important to be aware that scams related to life insurance do exist. Scammers often take advantage of the complexities and emotional nature of life insurance to trick consumers. 

In the following section, we’ll take a look into some common life insurance scams and how to spot them. 

A person signing a life insurance policy

8 Life Insurance Scam Examples You Have to Know

Purchasing life insurance is very common; in fact, a study by LIMRA and Life Happens found that the percentage of people with life insurance has risen to 52% in 2023, up from 50% the previous year. 

Yet, the risk of scams can be present when buying life insurance. That’s why it’s crucial to identify these practices to avoid them. . Here are 8 common life insurance scams that you need to be aware of:  

1. Policy Flipping

Untrustworthy agents may convince you to switch policies frequently so they can earn more commissions, regardless of whether the new policies are beneficial for you. This practice can reduce your policy’s value due to cancellation charges and new policy fees. It means, for example, you could be charged an administrative fee to process and issue a new policy. 

2. Excessive Coverage Push

Some agents may try to sell you more insurance than you need or add unnecessary clauses to increase their commissions. It’s important to review your insurance needs carefully and avoid the pressure to buy excessive coverage.

One example is opting for an accidental death benefit rider on your life insurance policy, even if you rarely engage in high-risk activities.

3. Impostor Agent Communications

Scammers often act as insurance agents or company representatives. They will likely contact you via phone, email, or even through social media, claiming there’s an issue with your account that requires your immediate attention—and personal information. Always verify the identity of anyone who contacts you claiming to be from your insurance provider.

Learn how to protect your phone number from scammers.

4. High-Pressure Sales Tactics

High-pressure tactics include creating a false sense of urgency, such as claiming that rates will increase very soon unless you sign up right away. Remember, legitimate agents will not rush you into making a decision on such an important purchase.

5. Fake Beneficiary Claims

You might receive a scam call or letter informing you that you’re the beneficiary of a large life insurance policy from a distant relative or even a stranger. However, to claim the benefit of inheritance, you must pay a fee upfront. Legitimate insurance companies do not operate this way.

Real Case: In January 2024, two victims were told they were entitled to a €280,000 life insurance payout from a deceased relative. Fraudulent letters from Swiss Life directed them to contact a fake notary in Paris, indicating the notary’s name, email address, a legitimate-looking website, and a French business identification number.

The victims were instructed to fill out documents and eventually pay a €14,000 tax to access the money. Fortunately, neither of the victims paid the fraudsters.

Discover how to spot fake websites with our post about scam website detectors.

6. Misleading Rate Offers

Scammers might be offering extremely low rates for life insurance to trick you in. However, once you start the application process, you find out that the rates are only for specific, unlikely scenarios. Always read the fine print and ask for a detailed quote based on your actual circumstances.

7. Stolen Premiums

Some unethical agents collect premiums from clients intending to pocket the money instead of remitting it to the insurance company. Always ensure that you receive a receipt or confirmation directly from the insurance provider when you pay your premiums.

8. Fake Insurance Policies

There are cases where fraudsters create entirely fake insurance policies from nonexistent companies, tricking consumers with documents that appear authentic. Additionally, there are two main scenarios to be aware of:

  • Misled Agents: Sometimes, even legitimate insurance agents are unknowingly involved in selling these fraudulent policies, further complicating the detection of the scam.
  • Unlicensed Companies: Legitimate companies not licensed by the state may sell unregulated products, misleading consumers into thinking they are purchasing insurance. For example, a health sharing plan might be marketed as insurance when it is actually an unregulated, non-insurance product.

Before buying a policy, verify the insurance company’s legitimacy through your state’s insurance department website.

How To Avoid Insurance Scam

You can follow several practical steps to ensure you’re not falling victim to fraud. Here’s how to safeguard yourself and your finances:

  • Report Suspicious Activities: If you come across any unusual or suspicious behavior from an agent or about a policy, don’t be afraid to report it. Contact your insurance company to verify the information first. 

If the activity is indeed fraudulent, reporting it can help protect others from falling victim to similar scams.

  • Pay Only the Insurance Company: To avoid your money going missing, always pay the insurance company directly, not through an agent. This reduces the risk of diverted premiums, where agents may pocket your payments instead of reporting them to the insurance company.
  • Check Agent Identification: Before committing to any life insurance policy, do your homework. Check the insurance provider’s credentials through your state’s insurance department. This can help confirm they are licensed and in good standing.  
  • Understand Your Policy: Understand the terms and conditions of any life insurance policy fully. Read the fine print and ask questions. If anything isn’t clear, seek clarification from independent sources or financial advisors. 
a person signing a life insurance policy on a tablet

How to Report Life Insurance Scam

If you suspect that you’ve fallen victim to a life insurance scam, it’s key to report it immediately to help prevent future fraud. Here’s a guide on where and how to effectively report such activities:

  • Contact the Insurance Company: Start by reporting your suspicions to the insurance company involved, as they have a strong interest in preventing fraud.
  • National Insurance Crime Bureau (NICB): You can report fraud to the NICB, a non-profit organization that collaborates with insurers and law enforcement, either online or by calling their hotline at 800-TEL-NICB (800-835-6422).

Handling Life Insurance Scams Effectively

Life insurance is a valuable and legitimate tool for financial security, but scams can be a possibility. In fact, 48 states have made insurance fraud a specific crime, and nearly all insurers (96%) use anti-fraud technologies to detect it, according to The Coalition Against Insurance Fraud.

But as a potential buyer, understanding how insurance scammers work and knowing how to respond can help prevent the severe consequences of being scammed, ensuring that your financial security remains intact. If you need support to deal with this kind of scam, Cryptoscam Defense Network  community is here to help.

FAQs About Life Insurance Scam

Is Life Insurance Regulated?

Yes, life insurance is regulated. It is controlled at both the state and federal levels in the United States. Each state has its insurance department that monitors insurance operations, while nationally, the National Association of Insurance Commissioners (NAIC) provides additional guidance and support. 

At the federal level, agencies like the Federal Reserve System and the Securities and Exchange Commission (SEC) regulate aspects of the industry related to bank holding companies and securities products, respectively.

What to Do If You’re a Victim of a Life Insurance Scam?

If you become a victim of a life insurance scam, you should take the following steps:

  • Contact State Authorities: Report the incident to your state’s department of insurance. This can lead to the revocation of the fraudulent agent’s or agency’s license and potential prosecution.
  • File a Report with the Insurance Fraud Bureau: By reporting to the Insurance Fraud Bureau, you help prevent scammers from victimizing others, contributing to broader efforts to combat insurance fraud.

We Want to Hear From You!

The fight against cryptocurrency scams is a community effort, and your insights are invaluable. Have you encountered a scam, or do you have questions about navigating the complex world of digital currency? Maybe you have suggestions or want to share your story to help others. Whatever your experience, we’re here to listen and support you.

Reach out to us at Share your stories, ask questions, or make comments. Your voice is crucial to building a resilient and informed community. Together, we can improve our defenses and promote a safer digital space for all.

Be a part of the change. Your story matters.

Photos via Unsplash