Is Your Life Insurance Policy a Fraud?Is Your Life Insurance Policy a Fraud?

Most of us buy life insurance with important goals in mind like paying for funeral expenses, covering any outstanding debts, or providing for our heirs after we’re gone. Unfortunately, life insurance scams often target older adults who are concerned about end-of-life issues and are more likely to be vulnerable to high-pressure or deceptive pitches. Here are some common scams to watch out for when buying a policy (or reviewing one you already own), steps to take that reduce your risk of being a victim, and who to contact if you think you’ve been scammed.

Typical life insurance scams

Fake insurance companies are a real problem. Investopedia says these operations, also known as ghost companies, may look legitimate but typically involve high-pressure sales tactics to bring in customers who pay premiums on policies that don’t exist. Tragically, this type of fraud is sometimes only discovered after the policyholder dies, by which time the fraudsters have moved on.

Corrupt agents may steal premiums from policyholders, even if the policy is written by a legitimate company. The National Association of Insurance Commissioners says this type of fraud happens when agents request that customers write their premium checks directly to them, keep the money for themselves, and leave the customers with lapsed or cancelled policies.

“Churning” is a way that fraudulent agents make more money from existing or already insured customers without delivering any additional benefits. Bankrate describes this type of fraud as selling a more costly new policy to a customer, falsely describing it as an upgrade, and collecting a commission on the sale.

Ways to reduce your risk

To make sure you’re dealing with a legitimate company that’s licensed to write policies in your state, use your state’s insurance department website to look up the company or call the department and ask if they’re licensed and in good standing.

Always make your premium payments to the company itself rather than to your agent. If he or she balks or insists that you must write the check to him or her, stop and report the situation as a possible scam. Reputable agents direct their customers to pay the company directly.

Never sign up for a policy or write a check under pressure. Reputable agents and companies don’t offer “today only” deals.

Take the time to review the policy documents on your own, away from the agent, and have a trusted friend, your attorney, or your financial planner look them over before you make a decision.

What to do if you suspect a scam

Call your state’s department of insurance. This is the agency that regulates companies that operate in your state and investigates possible fraud. You can find an interactive map with mailing addresses and phone numbers for insurance departments in all 50 states, the District of Columbia, and US territories at the National Association of Insurance Commissioners website.

If you think your agent has been pocketing premiums rather than forwarding them to your insurer, you should also call the company’s consumer affairs department directly (not the agent) to report your suspicions and to check the status of your policy.

Casey Kelly-Barton is an Austin-based freelance writer whose childhood was made awesome by her grandmothers, great-grandmother, great-aunts and -uncles, and their friends.


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