These shady schemes can cost you and your wallet big time.
Scams are far more common than you may think. Consumers lost more than $8.8 billion to fraud in 2022. Typical victims of financial and investment fraud schemes in particular are men who are financially literate, college-educated and middle aged or going into retirement age. These targets become victims of financial fraud and other schemes, not solely because they aren’t paying attention or aren’t well-versed in money management, but due to other factors, such as financial pressure, need to spend more time with family or large expenses.
Life insurance scams can be no different. The total cost of non-health insurance fraud is estimated to be more than $40 billion/year. People looking for term life insurance coverage should be aware of what potential scams and fraudsters exist out in the world. That’s why we’re diving into 5 life insurance scams that can affect you, your family, and how you can keep your money safe.
- 5 life insurance scams
- Life insurance facts
- How to avoid life insurance scams
- What do I do if I’m the victim of a life insurance scam?
- Life insurance facts
- TL; DR
5 life insurance scams
There’s plenty of financial, investment and life insurance fraud schemes floating around out there. If you’re looking for a life insurance policy, term or whole, knowing tricks scammers use can be an invaluable way to keep your money safe. We’re listing 5 here: fake contacts, beneficiary scams, premium diversions, insurance churning, and overselling.
1. Fake contacts
When it comes to insurance, it’s important to make sure that you confirm the identity of anyone contacting you for money. Fake contact life insurance scams occur when scammers use phone, email or text messages under a false identity to ask for money or get personal information. Sometimes they may try to convince you that there’s a problem with your account or they’ll pose as an agent who’s trying to give you a once-in-a-lifetime life insurance policy with a totally fake company.
You can avoid this life insurance scam by not clicking on any suspicious links you receive in email or in a text. If someone looks to contact you via the phone, hang up and contact the company directly. And never give out personal or financial information to any unknown contacts.
2. Beneficiary scam
This life insurance scam happens when the scammer contacts you claiming that you’re the beneficiary of a life insurance policy for someone who has recently passed. The scammer will claim that an outstanding premium payment is all that’s left and they’ll release the death benefit to you but you need to pay the premium.
Like the previous scam, don’t give out any personal or financial information to any unknown contacts. If you’re contacted by a company for a deceased loved ones’ life insurance policy, it’s important to contact the company first to see if it’s all legit.
3. Premium diversion
This life insurance scam is one of the most common types of insurance fraud, according to the FBI. Generally, life insurance agents collect your premiums and pass them along to your company. However, some agents embezzle your premium payments, keeping them for themselves. Alternatively, this can happen when an agent sells insurance without a license and collects premium payments anyway.
Be wary if an agent asks you to make your premium payments out in their name instead of the insurance company.
4. Insurance churning
Insurance churning is one of those whole life insurance scams that target permanent policies. When permanent policies are sold, agents get a commission from the insurance company. Scammy agents will get policyholders to either use their policy’s cash value to buy more insurance or get them to switch policies so they can pocket the first-year commissions.
To avoid this scam, make sure you understand what goes into switching permanent life insurance policies and what the benefits are.
This is an all-around life insurance scam. Agents are there to help you determine the right company and coverage that best suits your needs. However, some agents may try to get you to buy more coverage than you need, while others may try to get you to pay for unnecessary policy add-ons. For example, some agents may suggest you need a child rider on your policy when you don’t have any children.
Trusted agents will only suggest policies that are best for you and your needs. Avoid this sort of scam by being aware of your policy’s limitations and being clear on your own financial needs.
How to avoid life insurance scams
One of the best ways to keep yourself safe when looking to buy a life insurance policy is to do your research and be as knowledgeable as possible. Scammers prey on people who know just enough but may cut corners to maximize reward. Here’s some things to keep in mind while you’re looking:
- If a plan looks suspicious or too good to be true, confirm the information before buying.
- Don’t give any financial or personal information to people you don’t trust.
- Avoid clicking links from any sources you don’t know or aren’t sure about.
If you’re suspicious about a company or an agent you can check out the Insurance Information Institute. There you can contact your state’s Department of Insurance to make sure the company or agent you’re speaking with are legitimate.
What do I do if I’m the victim of a life insurance scam?
If you are scammed, there are steps that you can take. These steps can be used not just for life insurance scams but other forms of financial fraud as well.
Stop paying money
If you’re being scammed, the first step is to stop paying money to the scammers.
Collect pertinent information and documents
Gather information and develop a timeline of events that can help in reporting the fraud. This can include things like the names the scammers used, emails, text messages, phone numbers used to contact you —anything related to the scam should be collected for reporting.
Protect your identity
If you’ve provided payment info to the scammers, protect your identity by blocking access to payment methods. It may be as simple as not paying, but you may have to contact your banking institution if any financial information was shared.
Report the fraud
Contact the appropriate authorities if you believe you’ve been the victim of fraud. The Commodity Futures Trade Commission (CFTC) and the Department of Justice have ways to report fraud online. There’s also local ways to report fraud, if the scam happened locally.
Change behaviors to avoid future fraud
While being the victim of a scam doesn’t feel great, it’s important to be proactive and identify behaviors that can help you avoid schemes in the future. You can develop refusal scripts, delete unsolicited emails, and getting second opinions from trusted advisors are a few ways you can start protecting yourself moving forward.
Life insurance facts
Is life insurance a scam? No, not at all. Life insurance is a tool that can provide financial protection for you, your loved ones and those that are financially dependent on you. In addition, it can help people feel more financially secure. Among policyholders with financial dependents, 68% reported feeling secure according to LIRMA’s 2022 Barometer study. That’s why life insurance is important—knowing that you have options to help your loved ones even in the face of tragedy.
If you’re in the marketplace for a flexible term life insurance policy, look no further than Wysh. Our budget-friendly policies are flexible enough to meet your changing needs. Head on over to our free Wysh Builder tool to start crafting your personal policy. There’s no need to apply to visualize the policy of your dreams, so give it a try. We hope to see you on the other sign (of applying, that is).
- Consumers lost more than $8.8 billion to fraud in 2022
- Total cost of non-healthcare insurance fraud is estimated to be approx. $40 billion/year
- Typical fraud victims are men who are college-educated and financially literate. Their often motivated to move quickly and cut corners for personal reasons, such as spending more time with family or large expenses.
- Commons scams to look out for: fake contacts, beneficiary scams, premium diversions, insurance churning & overselling
- There are steps to take if you’ve been the victim of a life insurance scam