Do you think you’re the victim of insurance fraud? Perhaps you’re just curious about the various types of insurance fraud.
What is insurance fraud?
Insurance fraud is the intent to defraud insurance companies or policyholders in pursuit of money.
Different types of insurance fraud include overinflated claims, false claims, fake-death claims, among others. Insurance fraud is a serious offence that’s considered a white-collar crime, especially when insurance agents or executives commit the fraud.
Insurance fraud is very common, which is why insurance companies usually hire investigators to vet the claims thoroughly. However, insurance fraud can be very hard to prove.
This article will highlight different insurance fraud examples in greater detail. Let’s explore.
Filing a False Claim
A false claim can happen in many forms. For example, a claimant may damage a vehicle intentionally and file a claim. From there, they can repair their car on the cheap and pocket the rest of the money. Other examples include:
False Workers’ Comp False Claims
A worker may stage a slip and fall and file a false workers’ comp claim. False injury claims can generate high payouts, especially if the applicant claims severe injuries. On average, an employee can receive around $20,000 in comp benefits.
Arson Claims
A policyholder may hire someone to set fire to a building or home. Perhaps the owner owes more than the value of the property. Burning it down can generate high insurance payouts and eliminate mortgage burdens in the process.
Homeowner False Claims
False claims also apply to homeowners who lie about property damage. They could damage something on their property and file a claim. Homeowners or renters may also stage a burglary for the insurance money.
False Car Accident Claims
Multiple parties can stage a car accident and file a fraudulent claim. They could also arrange to have the car stolen.
They can use the money to buy a new car. A more elaborate scheme involves selling the car to an overseas buyer and filing a false claim.
The Penalties
Regardless of the scenario, you could face a misdemeanour charge for a lighter offence. If caught, you could get up to five years in jail on a misdemeanour charge. You could face more jail time for repeat offences.
Overall, the severity depends on the nature of the fraud. Severe insurance fraud is typically a felony that can carry up to five years in prison. Moreover, claimants could face a lawsuit from insurance companies.
Faking a Death
This type of fraud is common in television and movies, and it’s common in real life. The person with the life insurance policy will fake their death so the beneficiary can receive the benefits.
After, the policyholder and the beneficiary flee with the payouts. Also, one party may doublecross the other and abscond with the funds. In extreme cases, a beneficiary will murder a policyholder to get the benefits.
The Penalties
First, faking your own death is illegal. You could also face additional charges for creating a false identity. You could face years in prison for this type of life insurance fraud.
For instance, an insurance agent who was in on the scam may receive 10 years in prison. If a beneficiary murders the policyholder, the offender could face life in prison or the death penalty.
Inflated Claims
Filing a claim can begin with a grain of truth. Scammers in this arena aim to get more money than the claim is worth. For instance, an employee may have suffered a minor injury but has exaggerated the extent of their injuries.
This is also a common practice in disaster zones, where scammers will take advantage of the chaos. There are times when homeowners are in on the scam. For example, homeowners may claim work that was never performed on the property.
The insurance company may also receive a bill for expensive materials. Then, scammers can replace high-quality materials with cheaper materials.
The Penalties
This type of offence can be a misdemeanour as well, with a sentence of up to a year in jail and possible fines. The crime could also constitute a felony.
Additionally, inflated claims can cause higher premiums for claimants and other policyholders. If the insurance company must honour high payouts, they will raise rates on all customers to compensate for the losses.
Fraud Committed by Insurance Companies
Policyholders aren’t the only culprits when it comes to insurance fraud. Insurance companies can commit fraud in two key ways:
- Premium Diversion: This occurs when insurance companies executives, or their agents, will keep a portion of a claimant’s premium before underwriting examines the claim. Unscrupulous insurance agents may also sell insurance and withhold the payouts. This is the most common type of fraud within the insurance industry.
- Fee Churning: This type of fraud occurs when insurance agents switch a life insurance policy to different insurance companies for multiple commissions.
Regardless, the victim will contend with higher or denied premiums. If you’ve been the victim of insurance of fraud, contact an insurance fraud lawyer.
The Penalties
Insurance agents and executives are subject to the same types of misdemeanour or felony charges. They may also pay hefty fines.
Plus, authorities can freeze bank accounts. Insurance agents and institutions may also face civil lawsuits.
The Most Common Types of Insurance Fraud
The most common types of insurance fraud include workers’ comp fraud, arson fraud, and life insurance fraud. Policyholders may also overinflate their claims to receive more money.
Insurance fraud is especially prevalent during chaotic circumstances, such as natural disasters. Policyholders and agents alike can commit insurance fraud.
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