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Life Insurance Fraud

What is Life Insurance Fraud?

Life insurance fraud is what happens when one party involved in a life insurance contract misleads the other party. Insurance fraud can come with serious financial consequences.

The rules around information disclosure in life insurance

Before we dig into the different types of life insurance fraud, it’s first important to clarify that you can be convicted of fraud without outright lying. Even holding back information could be considered fraudulent.

When you apply for life insurance, you share quite a bit of information with the insurance company during the underwriting process. They’ll want to know about your health habits, your hobbies, your occupation, your lifestyle choices (how much you smoke and drink), and more.

If you’re aware that healthier people pay less for life insurance, you might be tempted to fudge the truth a little here and there. If you don’t share that you chew tobacco or regularly go skydiving, for example, you’ll probably secure a more affordable policy.

The problem, though, is that when you buy life insurance, your policy is a contract. And that contract is subject to insurance law, which means something called the “doctrine of utmost good faith” applies.

This doctrine legally obligates you to not just respond truthfully to questions when asked, but also to share any information that you think could impact your policy. So, yes, your tobacco use or penchant for high-risk hobbies count.

Fortunately for you, the doctrine of utmost good faith isn’t a one-way street. It also applies to the insurance company, obligating them to share any and all information that they think you should know about the policy you’re considering. This should protect you from fine print that could negatively affect your coverage.

Any time you or your insurance company violate the doctrine of utmost good faith, you or they could be found guilty of fraud.

Now that we have a good baseline understanding of how intentional misrepresentation can play into fraud, we can dig deeper.

Types of insurance fraud

Life insurance fraud can come in many different forms, including:

Insurer fraud

If the insurance company misleads you in order to get you to buy a specific policy, they can be found guilty of fraud. For example, if you thought you were buying a policy with fixed premiums but instead find that you purchased a yearly renewable termterm policy that gets more expensive each year, you could pursue the insurer for fraud. Let’s clarify here: the insurer has to have intentionally misled you. If they gave you a policy document clearly outlining the terms and you simply failed to read it thoroughly, that’s on you. You’ll need to have some verifiable evidence that they deceived you.

Another common type of insurer fraud is called upgrade or churn fraud. In this case, the insurer convinces you to buy another, more expensive life insurance policy even though the policy you had in place was perfectly sufficient for your needs.

Applicant fraud

This goes back to the doctrine of utmost good faith. When you apply for life insurance, you’re legally obligated to be forthcoming about any details that could influence your coverage. If you weren’t and your life insurance provider discovers it later, they can void your policy. If that voiding occurs after you’ve passed away, your beneficiaries will be left with nothing.

Claim fraud

This is a relatively rare one, but it does happen. In one type of claim fraud, people fake their own deaths in an attempt to collect their policy benefit. In another, a policy beneficiary kills the insured or has them killed so they can collect their life insurance policy’s death benefit.


If someone falsifies documents to make changes to a life insurance policy, it can be considered forgery-based fraud. Someone might forge a document to add themselves as a beneficiary to a specific policy, for example.

Agent fraud

If you give money to a life insurance agent so they can pay your policy premiums on your behalf, keep an eye on your coverage. If you ever miss a payment for which you know you gave your agent money, there’s a chance they may have pocketed it. An agent is required to provide a receipt for any monies received on behalf of the insurance company.

Fake policy fraud

In this case, it’s not an insurance company or an insured committing the fraud. Instead, it’s an unsavory individual selling a fake insurance policy, then pocketing the money from the unknowing “insured.”

Avoiding life insurance fraud

Clearly, life insurance fraud can take many forms. To protect yourself from becoming the victim of fraud, thoroughly vet any company with which you’re considering buying coverage. Research the company itself and the agent to make sure everything checks out.

You also don’t want to be convicted of perpetrating life insurance fraud, even posthumously. While it might not seem like a big deal if you’re found out after you’ve passed away, it would almost definitely mean the life insurance company would void your policy. That, in turn, would leave your beneficiaries with nothing, despite the fact that you paid your premiums for all of those years.

All told, if you want to be able to count on your beneficiaries receiving your policy’s payout when you die, it’s important that you be entirely truthful when applying for life insurance.

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