How to Avoid Insurance Fraud

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Insurance Articles by A-1 Auto Insurance

How to Avoid Insurance Fraud

You have probably spent considerable time deciding on a reliable insurance company. However, regardless of your time and effort, a percentage of insurance policy holders fall victim to insurance fraud every year. Understanding the various methods that insurance agents utilize will help you become better aware and will minimize your risk of falling prey to one of their schemes. We’ll explain some of the more common schemes involved in insurance fraud and steps you can take to avoid them.
Churning
This scam involves an insurance agent who attempts to sell an additional insurance policy to an individual who already possesses a policy that has a cash value. Agents often use churning to offer a policy holder a new policy at a lower rate. The fraud occurs because despite the low-priced policy, the remainder of the premium is taken from the cash value of the person’s initial insurance policy. The new insurance policy ends up depleting the entire cash value of the initial policy. If the policyholder attempt to arrange for money to pay both policies, his or her coverage will end up lapsing.
Stacking

Usually one policy will cover the needs of an individual in each area of insurance. However, some consumers may want to purchase an additional life insurance policy or annuity for investment. Dishonest insurance agents may attempt to sell you more than one insurance policy needlessly by making you believe you require additional coverage. Known as stacking, this scam often occurs with health insurance or life insurance policies.
Pocketing Premium Payments
An insurance policy will usually be declared void if you don’t pay any premium. Most policy holders will make the require payments by using an insurance agent who has often sold them the relevant insurance policy. One way insurance agents commit insurance fraud is by failing to pay the insurance company the premium on your behalf. This leaves the policy holder with absolutely no insurance coverage. Many fraudulent agents take a gamble that their clients will never have to submit an insurance claim. They end up pocketing your hard-earning premium money and leaving you with no coverage.
You can protect yourself against this type of insurance fraud by paying your premium directly to the insurance company, rather than to the insurance agent. Most companies will accept a money order or check from their policy holders. If you do end up being deceived by a dishonest insurance agent, you should contact the local authorities. The law is on your side and agents who fail to pay the premium money you gave them to the insurance company may lose their insurance license. If they retain your money for personal use, they may also face criminal charges of theft.
Sliding
Some insurance agents will attempt to sell you coverage you either don’t require or don’t even want. This process is called sliding. They will try to convince you that the insurance is part of a so-called package. Sometimes, they will even hide the extra coverage from you. If you are purchasing an insurance policy with a low rate of commission, the insurance agent may try to slide in extra coverage that offers them a much higher commission. The most common instances of sliding occur with memberships to motor clubs, guaranteed renewable term life insurance policies and accidental death coverage.
Twisting
Normally, insurance agents receive their largest commissions during the initial year of an insurance policy, followed by lower commissions in subsequent years. That’s why some agents will lie and try to convince you that you must change insurance companies or policies. This enables them to profit from the extra commission fees. This type of insurance fraud is called twisting, and it occurs most often with life insurance policies.
Before changing any of your existing insurance policies, conduct some research. For example, if you change your health insurance policy, you will not normally receive any compensation for illnesses that were diagnosed before your policy took effect. Other insurance policies may also require a waiting period before you are eligible for coverage. Make sure you weigh both the advantages and disadvantages before ever changing an existing insurance policy.
Additional Methods
Insurance fraud can also occur when dishonest agents sell policy holders a fake insurance policy. Another common scam involves agents using the license of a retired or former insurance agent. Still others will tell you they are representing the state or federal government. You can always verify that the license of a particular insurance company or agent is valid by contacting the Department of Insurance in your state.

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