5 Common life insurance scams and how to avoid becoming a victim

Anyone can be a victim, but key targets are generally older citizens who may be looking to get or update their life insurance coverage. Typically, scams have a few things in common. They often present bargains that are too good to be true. They also tend to try to get you to act immediately. The crooks don’t want to give you time to think or talk to your family and friends.

Let’s look at how five well-known life insurance frauds work. Once you can recognize them, you’ll be more prepared to avoid them.

Common life insurance scams

1. Request for personal information or money

Criminals might pretend to work for your insurance company. They will contact you to tell you there’s a problem with your insurance. For example, they might claim they need your help to clear up a mistake with your Social Security number. They could update your records, if only you would take a few seconds to read it to them.

They might also claim they never received your last payment. Unfortunately, they need that payment immediately to prevent cancellation. They might claim they can update your account if you give them your credit card number.

Don’t communicate with unknown people claiming to represent your insurance company. Always contact your insurer using the contact information on your insurance documents, and explain the mysterious message you received. Your insurer will let you know whether the person is real or fake.

2. Fake beneficiary

If you’ve lost a loved one recently, you might be the target of the fake beneficiary scam. Crooks will pretend you’re in line to acquire money from your loved one’s insurance. But there’s one small problem: There’s a small outstanding balance you need to pay.

Don’t let the prospect of receiving money cloud your judgment. You can put your mind to rest by contacting your loved one’s insurance company. But don’t use the contact information given to you as it’s likely false.

3. Phony policy

The only thing worse than not having life insurance is having a fake life insurance policy. Con artists can print documents or create websites that look like the real thing. Do research before buying insurance. Have you heard of this insurance company? Why did this company choose you?

Contact the insurance division of your state government. If the insurance company and the representative are genuine, they’ll be on the state’s file. It’s against the law to operate an insurance firm without a state license.

4. Pressure to buy or switch policies often

Your whole life insurance plan might have built up a significant cash value. So, a crooked insurance agent might pressure you to use that money to increase your coverage.

They might recommend you borrow money from your whole life plan to buy extra coverage. You may not need a larger policy, so what’s an agent’s motive? Agents can possibly increase their salaries each time you enlarge your coverage.

For that same reason, an agent may try to sell you a new policy that has the same coverage as the old one—or even less coverage. In either case, the agent makes money from whole life insurance scams. It can be helpful to be aware of these scenarios, so you don’t abruptly switch or add to your policy. Ask for documents showing how making a change would help you. Trustworthy agents don’t hesitate to give you all the paperwork you need to decide.

5. Dishonest advertised rates

Sometimes, you’ll see life insurance plans advertised at extremely low rates. You may wonder how the insurance firm stays in business with such bargain prices. You have a right to be suspicious because the advertised rates may be misleading. The company could be using the prices to attract potential new customers who are unaware of the scam.

You might even suspect that the advertised rates are only for people in the best physical health. Only a small percentage of people could qualify. The average rate for the typical person will be much higher. But you won’t find out until you’ve applied.

Once they reject you, they offer you a plan at a higher rate. You may not want to deal with applying to another company, so you accept the offer. That’s what the company hopes you'll do. If they can get your attention using a low rate, there’s a chance they can sell you a more expensive plan.

How to report life insurance fraud

Anyone can fall victim to fraud, so don’t hesitate to report the incident. Tricksters count on you being too embarrassed to tell anyone what happened.

Instead, contact your state’s consumer protection division or a fraud unit. You can also report the incident to federal agencies like the Federal Trade Commission and the National Insurance Crime Bureau.

Gather everything related to the crime, which might include paper or electronic documents, phone call recordings, emails, or text messages. You might also have a record of your payment.

Remember to alert your bank and credit card company for the possibility of fraud. You should also watch your accounts regularly for signs of theft.

Scammers can damage your financial reputation overnight. By pretending to be you, they could drain your bank account and run up a huge balance on your credit card.

If you need more detailed advice, consider hiring an experienced lawyer. Many lawyers specialize in helping victims of financial crimes. It may be necessary to take legal action to protect yourself from further harm.

How to avoid a fraud life insurance scam

Always do research before handing over personal information or money. Deal only with familiar insurance companies who list several ways to contact the office. Typically, they’ll provide a phone number, email address, and sometimes a physical address.

Never give sensitive information to strangers posing as insurance representatives. This includes your credit card number, bank account information, and Social Security number.

Be aware of insurance fraud

It’s sad, but criminals are trying to take advantage of your need for life insurance. But you’re more likely to avoid becoming a victim now that you know how many life insurance scams work. Consider researching the agent and company before talking any further, and only give your personal information or money to agents you know.

Also be careful of offers that sound too good. For example, what are the chances that someone made you a beneficiary without telling you? Similarly, it may not be reasonable that an agency has rates as low as they advertise.

If you do become the victim of insurance fraud, tell the authorities. Then keep an eye on your financial accounts to spot suspicious activity.