article by SelectQuote
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Having a secure life insurance policy is one of the many ways you can ensure your loved ones are financially taken care of in the event of your passing. Life insurance policies not only cover funeral expenses, but they may also cover outstanding debts (in full or part, depending), and assist with living expenses. While many reputable and trustworthy organizations provide these types of policies, there are also, unfortunately, several ruthless scammers looking to take advantage of this market.Life insurance scams are attempts to take advantage of individuals under the guise of offering various life insurance benefits. Often, scammers intend to extort money from the target, whether they hold the policy or are listed as a beneficiary or a survivor. Fraudulent policyholders can also conduct life insurance scams to defraud money or steal personal information.Although the goal of life insurance scams may vary, the damage can still be devastating. The Coalition Against Insurance Fraud and Colorado State University Global found that life insurance scams cost approximately $74.7 billion per year. As such, it’s vital that consumers and insurance carriers alike stay alert for life insurance scams and understand how to avoid being victimized or mitigate the damage as much as possible.

Common Types of Life Insurance Scams

To effectively prevent life insurance scams, you must be aware of common types of life insurance scams. While individual details can vary depending on your situation and relationship to the policyholder, the majority of scams fall into a few general categories. These common types of life insurance scams include:

  • STOLISTOLI (stranger-originated life insurance) refers to a scenario when someone takes out a life insurance policy on a third party for whom they have no insurable interest.
  • Smishing/PhishingPhishing is the process of trying to extort benefits (usually money) from someone by posing as another person (usually an authoritative figure). In this case, the person would pose as a legitimate life insurance provider. This usually takes place over email, but smishing attacks use text messages.
  • Phony policies: In some cases, fake policy providers will attempt to sell targets fake policies. They will then pocket the money afterward.
  • Overselling/fee churning: Even completely legitimate insurance lenders can commit overselling or fee churning. Both processes involve either selling policies that are unreasonable or unnecessary for the holder’s needs, or are otherwise overpriced for the situation. Successful lenders will end up making a commission on the sale. This is why working with a trustworthy insurance broker has its benefits; the broker can shop policies on your behalf and make sure you don’t buy too much coverage.
  • Policy switching: Policy switching is the act of switching a policy or adjusting the parameters of the policy without the knowledge of the policyholder.
  • Forgery: Forgery is the act of falsifying a document or signature unlawfully—often through the impersonation of a party whose consent is needed to legitimize a document.
  • Beneficiary scams: In a beneficiary scam, the scammer contacts the target posing as an insurance representative to inform them they are the beneficiary of a life insurance payout. They will then ask them to hand over sensitive personal information or a fee to proceed with the transaction.
  • Premium diversion: This is the most common type of life insurance fraud and simply refers to the act of embezzling insurance premiums.

This list broadly outlines the common characteristics of life insurance scams and fraud. The specifics can vary based on your situation and may look slightly different depending on the policy, how the scammers contact you, and even if you have already been a victim of financial fraud or identity theft. While it’s important to be aware of what scams are out there, there are many other important steps you can take to identify life insurance scams.

Tips for Recognizing Life Insurance Scams

Life insurance scams can take a variety of forms, which can make it more challenging to know when you’re being taken advantage of. From suspicious emails and phone calls to in-person cons, consider these useful tips for help recognizing a scam:

  • Beware of low premiums that are “too good to be true”: Although some life insurance providers may provide good deals, an offer too low or “too good to be true” may be a tactic to draw you in.
  • Compare quotes and policies: By comparing the quotes and policies of different providers, you can better understand the typical parameters and identify any suspicious outliers. Specifically, pay attention to the costs associated with policies and coverage differences, as you’ll find between whole life and term life policies. Not knowing your benefits can leave you susceptible to fee churning and added expenses.
  • Review emails/texts for misspellings, odd email addresses, suspicious attachments, or links: Legitimate outreach from a reputable organization will rarely present itself unprofessionally by using poor-quality spelling, grammar, and website addresses when contacting a client. If you’re sent a suspicious link, never click on it directly.
  • Know the rules around beneficiaries: A lot of considerations go into choosing the right beneficiary for a policy. Communicate with those you select so no one is surprised to find they were listed. Likewise, if you learn you’re a beneficiary after someone has passed, ask questions to validate this information before you provide any personal data.

It’s also always best to err on the side of caution. If something doesn’t feel right, research the questionable outreach or end the interaction altogether. Be particularly careful when reviewing online communication from prospective providers. Cybersecurity is increasingly important, especially considering that cyberscams are rampant and can present themselves in many different ways. Be wary of suspicious emails, links, social media messages, or any other form of online contact that provides you with an unsolicited link to click, or an unprovoked request for personal information.

Tips for Preventing Life Insurance Scams

Useful tips for preventing life insurance scams include the following:

  • Ask for a license from your agent: By doing so, you can confirm the identity and credentials of your insurance agent.
  • Keep your private information private: Never divulge personal information unnecessarily. Research any claims that an agent needs information, and escalate any concerns about requests for your personal information.
  • Research the agent and life insurance company: Research both the individual person who is reaching out to you and the larger insurance carrier to assess whether they seem legitimate. It may also be helpful to independently contact the associated company (rather than asking the agent to transfer you to them) to ask about the individual who is contacting you.
  • Never give out personal or financial information to unsolicited contacts: Be wary of supposed insurance agents who reach out to you without you contacting them first. In particular, you should be wary of providing sensitive personal information to cold contacts.
  • Consider an independent broker: By finding a trusted independent broker, you can gain the assistance of a more experienced professional to help you navigate potential insurance deals.
  • Read the fine print or hire someone to help: Ensure nothing concerning is hidden in your contract. In some cases, you may benefit from hiring a professional to review the contract on your behalf.
  • Understand your coverage needs: If you understand what type of coverage you need, you can better navigate any attempts to overcharge you or expand your coverage unnecessarily. By doing this, you can maximize the affordability of your coverage and ensure the coverage is right for you.
  • Be wary of changes or upgrades to your policy: Keep an eye on your policy to identify any changes. When changes are made, ensure that you review them carefully and consult your insurance company if you have any objections.
  • Use verifiable payment methods: Be wary of how the insurance company proposes how you’ll pay for your premiums. Research and find out ways that payment processed through that means can be stolen.
  • Do not pay your insurance agent directly: A legitimate life insurance organization will have a professional payment portal and will not ask you to pay directly to the agent.
  • Maintain thorough documentation, including receipts and policy details: By maintaining thorough documentation, you can more quickly identify issues and easily prove unlawful or unethical practices if they take place.

The best rule of thumb is to prevent these issues rather than react to them. However, accidents do happen. You may find yourself a victim of a life insurance scam despite all of your best efforts to prevent one in the first place. If this happens, it’s time to take a different approach.

What To Do If You’ve Been Scammed

In some cases, you may not be aware that you have been scammed until contracts have been finalized or assets have been taken. However, there are still options in these circumstances, such as the following:

  • Gather and organize your records: It’s essential to have good records of your policy regardless of whether you’re targeted by a scam. However, a key aspect of reporting fraud or scams and catching the culprit or repairing financial damage is to keep clear, reliable records of your policy, conversations and any other information involved.
  • Report the incident: Report the incident to the proper authorities such as the Insurance Fraud Bureau. You should also report the incident to your bank and credit card company to prevent further money from being withdrawn and to attempt to reclaim any funds that have already been fraudulently taken.
  • Review the terms of the policy: If the scam has to do with misconduct from a legitimate insurance company, review the policy to identify any discrepancies and determine the necessary steps to exit the policy contract. Contact the company or its associated partners to inform them of the unethical or illegal actions and determine a course of action. Escalate the request as needed.
  • Stay vigilant: Once you have reported a fraud incident, don’t assume everything is taken care of. You’ll likely have follow-up communications with insurance companies, law enforcement, and other affected parties. Take care to guard your personal information and verify the identities of those you have to communicate with.
  • File a lawsuit: If the offending parties can be identified, you may have grounds to file a lawsuit. You’ll need to contact a lawyer to determine the validity of this course of action and better understand what it will entail.

Everyone’s situation is different, so if you’re unsure of what approach to take, seek the help of a financial advisor or another trusted third party. They can advise and support you as you sort out the situation.

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Demographics Most At-Risk

Scammers will generally target a wide range of individuals in an attempt to be successful at conning them out of their hard-earned money. Although any one person can fall victim to a life insurance scam at any time, some demographics may be more at risk than others, including:

  • Elderly people: Elderly people who are experiencing declining mental faculties may struggle to identify warning signs.
  • Young people: Younger people may be less experienced with identifying warning signs and understanding what a legitimate interaction with an insurance representative is supposed to be like.
  • People with disabilities: People with disabilities may be more likely to fall prey to scams due to a variety of factors, such as cognitive impairments, struggles with social interactions, or susceptibility to stress.

However, it’s important to understand that anyone could fall victim to a life insurance scam, and therefore everyone should be properly prepared.

Additional Reading

The more you know about life insurance scams, the better. The following resources can provide further valuable information to people who want to avoid life insurance scams or mitigate the damage of one:

Scammers rely on catching their victims off guard and unprepared. By taking the time to review the most recent information on the different types of life insurance scams circulating today, as well as educating yourself on what to do if you think you may have been taken advantage of, you can help to arm yourself against these malicious attacks.