Insurance Scams

Insurance In Depth

Sections on this page
  1. Types of Insurance 
  2. How to Compare Different Insurance Policies
  3. What Are Insurance Scams?
  4. Red Flags of Insurance Scams
  5. Most Common Insurance Scams
  6. How to Beat Insurance Scams
  7. Fallen Victim to Insurance Scams?

The insurance sector is a $1 trillion industry made up of more than 7,000 companies. And with individuals spending more than $5 trillion in premiums worldwide, it’s no surprise that it’s a big market for scammers ready to prey on unsuspecting victims.

Globally, non-health insurance fraud is around more than $40 billion per year, costing the average American family between $400 and $700 a year in increased premiums. It’s important to understand your options when it comes to insurance, how to compare offers, and what scams are out there so that you can protect yourself and family from falling victim to fraud.

Types of Insurance 

While you can get nearly anything insured, most policies fall within a few different categories. These include:

Though less common, you can also insure specific areas of your body, particularly if you need them to earn income. For instance, models may have insurance policies on their faces or other body parts that they need for photoshoots. Wine connoisseurs, on the other hand, may choose to insure their noses because they need them to differentiate between different types of vino.

How to Compare Different Insurance Policies

On the surface, many insurance policies may look similar, but you can compare them by taking a few minutes to examine a few key elements, including:

  • The premium you have to pay
  • The coverage you get for each category
  • The limitations regarding what’s covered

Further, you can compare companies by reading reviews about the quality of service they offer or determining which companies have been in businesses longer. In the end, your goal is to compile enough detail to make an informed decision.

Ask Questions, Do Your Homework

Be sure to pay close attention to factors such as how quickly they pay out on claims and whether they have a reputation for attending to customers’ needs.

Even when there’s been a natural disaster or another mass event that could impact several subscribers simultaneously, the company you’re considering should still have been able to provide adequate service to their subscribers.

What Are Insurance Scams?

There are two types of insurance scams, the first being carried out by the policyholder looking to collect on their policy and the second involving insurance producers intentionally deceiving policyholders.

Among the latter, the most common types of fraud schemes among insurance producers are:

  • Premium diversion
  • Selling insurance without a license
  • Collecting premiums without paying claims

In general, an insurance scammer works by getting you to pay for insurance but not delivering what the policy promises. They may take your money and disappear, or they may create false hurdles that they say prevent them from paying out on your claim.

Red Flags of Insurance Scams

One of the most common red flags of insurance scams is a broker or agent that tries to pressure you into buying a policy, often making it seem like you need to make the purchase right away.

Another red flag is if the premiums you’re being asked to pay are more than 15% to 20% lower than other companies that provide similar coverage. They may be trying to entice you with an outstanding deal.

Also, anytime you have a hard time finding a company’s contact information, or if the info you find doesn’t work, consider it a red flag. They may be trying to hide from the consequences of fraudulent practices.

Most Common Insurance Scams

Some of the most common insurance scams include premium diversion, selling insurance without a license, and collecting premiums without paying out claims.

Premium Diversion

Premium diversion occurs when an agent or a broker collects your money and keeps it. In this way, they prevent your premium from reaching the company providing the service, leaving you without coverage.

Selling Insurance Without a License

Insurance companies need a special license to practice, so if someone without a license sells you a policy, this is fraud. In some cases, their license may have been revoked as a result of dishonest practices in the past.

Collecting Premiums Without Paying Out on Claims

Some companies may pose as legitimate organizations to collect premiums from policyholders. Then, when someone files a claim, they may either not reply or pretend as if something else prevents them from paying out.

How to Beat Insurance Scams

The best way to protect yourself from insurance scams is to get multiple estimates when shopping, verify the licenses of every company you consider signing up with, never pay cash, and research the provider you’re considering through the Better Business Bureau, references, or online reviews.

Here are a few steps you can take to avoid insurance scams:

Do Research

Gather as much information about the company as you can before giving them your money. Be sure to keep a record of the company’s information including their license to provide the service, the name of person you’re speaking with, and the company’s phone number, email, and physical address.

Verify the Provider/Contact

If you received a call from an insurance provider without requesting a quote or consultation, hang up and call the company directly to verify that you’re speaking with a legitimate representative from the provider.

If you did request a consultation, get the name and/or license number of the agent before providing any sensitive information. Then, visit the Department of Insurance website by state to search for the agent. Perform an agent search or license search to verify they are not a scammer.

insurance scams
Example of state insurance checker to verify an agent's license.

Request Your Coverage Details in Writing

You should also get all of your coverage details in writing prior to agreeing to purchase a policy. In this way, if they’re trying to scam you, the fraud will be documented, making it easier for authorities to track them down and convict. Never sign anything without getting all your coverage details in writing.

Stop the Process

If you’ve done your homework but something still feels off or the deal seems too-good-to-be-true, stop the application or payment process and go elsewhere for your business.

Fallen Victim to Insurance Scams?

If you’ve fallen victim to an insurance scam, you’ll want to take action quickly to ensure your money and identity are protected.  

  • Report it to local authorities: They’ll tell you the next steps you need to take since each state has different laws regarding how insurance fraud gets handled. Plus, if they’re able to apprehend the suspect, you might get some or all of your money back.
  • Call the insurance company: Sometimes, a scammer will be someone who works for the actual company. Let them know about the incident so they can deal with it internally, they’ll also typically have systems in place for reporting fraud.
  • Safeguard your accounts: Depending on the kind of information you’ve provided the scammer, you may also have to take steps to safeguard your financial accounts. This includes situations where you were asked to make an access code or password, and you chose one that you’ve used on other accounts. The scammer may be trying to not only take your money but sell your information to other scammers for a profit.

Below are additional resources for reporting insurance fraud and information on what to do if you feel you’ve been a victim of this type of scam:

 

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