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The Lowdown on Seller Insurance Fraud

It is not a new plot: a husband insures the life of his wife and then murders her for the proceeds. In movies and television, the husband doesn’t get away with it but in real life he probably does more often than we want to imagine. This is a type of insurance fraud, but it is buyer insurance fraud. When an insurance company twists the process to maximize profit, it can be considered seller insurance fraud.
Insurance fraud affects everybody, whether you are a shareholder or a policy holder, because it requires safeguards against fraud which in turn raises premiums. Seller insurance fraud, however, is much more personal than buyer fraud, because it affects vulnerable individuals rather than some nebulous company which can protect itself.

The most common type of fraud is the delay, deny and defend that legitimate insurance companies routinely practice when it comes to claims. According to the website of insurance fraud law firm Ravid & Associates, P.C., in Detroit, aggressive action is needed when insurance companies attempt to escape their obligations. However, there are other types of seller insurance fraud out there which one should be careful of because there is usually no legal recourse for them. These include:

  • Ghost companies – there ain’t no sich company. This is an outright scam, where policies are issued to policy buyers, but the company is not legitimate and likely to disappear like smoke at the first hint of a claim
  • Theft of premiums – policy holders normally deal with agents who come to them rather than going directly to an insurance company. It can happen that the premiums paid to the insurance company never make it, having been filched by the agent. This results in the policy lapsing and the loss of coverage, not to mention the loss of any premiums previously paid. Most insurance companies now favor direct deposits, but it can still happen
  • Churning – insurance agents make their money from first year commissions, so they make more money with new policies. What some agents do is to advise existing policyholders to cancel their existing policies and get new ones, often convincing them that it is in their best interest. In general, it is not.

If you believe that you have been a victim of insurance fraud, contact an insurance company fraud lawyer at once to know your options. If you have been dealing with a legitimate insurance company, you have a better chance of getting the protection you paid for.

The Bottom Line

Insurance is a business that is built on risk analysis and probabilities. Every instance of insurance fraud puts pressure on the business, whether seller or buyer fraud. For this reason, many companies build generous contingency funds to protect them against fraud, as well as other unforeseen events. While this is good from the investor’s perspective, it does unfortunately lead to your personal life insurance premiums being higher than they otherwise would have been, in a more honest world.