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Insurance 101

5 life insurance scams that can hurt more than your wallet

Insurance 101

5 life insurance scams that can hurt more than your wallet

These shady schemes can cost you and your wallet big time.

Scams are more common than you think. Approx. 30 million Americans are victims of financial fraud each year. And if you think most of the victims are elderly people, you’d be wrong. The typical fraud victim is a middle-aged white man who’s financially literate but under financial pressure. Scammers prey on people and target anxieties. Doesn’t matter the industry.

Take insurance, for example. The total cost of non-health insurance fraud is estimated to be more than $40 billion per year. Life insurance is not spared. There are all kinds of life insurance fraud and scams—we even wrote about a few notable examples. Those were mostly about people trying to scam insurance companies. Today, we want to talk about 5 life insurance scams that can affect you, and how to keep your money safe.

  1. 5 life insurance scams
  2. How to keep an eye out for life insurance scams

5 life insurance scams

Five boxes, each featuring a different scam:  Fake contacts, with a drawing of a hand looking at a phone  Beneficiary scam, with a drawing of a woman looking worried at an envelop  Premium diversion, with a drawing of a thief in a ski mask at a laptop  Pocketing commission, with a drawing of a hand breaking open a piggy bank  Overselling, with a drawing of Pinocchio with a long nose from lying

1. Fake contacts

For this scam, the scammers may call, text, or email you directly. They might try to convince you that there’s a problem with your already existing life insurance policy. Or they’ll pose as an agent who’s trying to give you a once-in-a-lifetime life insurance policy with a made-up company. And unfortunately, fake agents are on the rise since people’s contact info has become more accessible.

2. Beneficiary scam

This scam is wild and one of the most common. The scammers will claim that you were a beneficiary on a deceased family member’s life insurance policy and that you have a payout coming to you. All they need is some information to authorize the payout—in reality, they’re phishing for sensitive information to collect, such as a Social Security number or bank account info.

3. Premium diversion

According to the FBI, this is the most common type of insurance fraud, and it’s one of many insurance agent scams. It’s when insurance agents embezzle your premium payments, keeping them for themselves instead of giving them to the insurance underwriter or company. Or this can happen when an agent sells insurance without a license and collects the premium payments anyway.

4. Insurance churning

Insurance churning is another insurance agent scam. The scammer will try to trick you into buying a new life insurance policy, but it’s not to benefit or protect you. Instead, they want you to buy more or they’ll switch you to another policy with the same coverage. However, while you don’t get more protection, the agent will pocket the first-year commission. Some agents may be paid more than the total amount of yearly premiums just for selling one policy.

5. Overselling

Licensed, trusted life insurance agents are there to help you determine the right amount of coverage. Some agents may get you to buy more, while others may try to get you to pay for insurance add-ons you definitely don’t need. For example, trying to get you to pay for a kids rider on your policy when you don’t have any kids. Scammer agents will try to sell you a way more expensive policy so they can bring home a fatter commission check.

How to keep an eye out for life insurance scams

As we discussed in our 5 NFT scams to look out for, research is one of the best ways to keep you safe. If you’re unsure if an offer or plan is on the up and up, don’t give them any personal information or pay people you don’t trust. And if you’ve received any emails from sources you aren’t sure about, don’t click on the links until you’re sure they’re okay. You can check out the Insurance Information Institute—there, you can contact your state’s Department of Insurance to make sure the agent or company you’re speaking with is legitimate.

Most importantly, if you are scammed, there are some steps to take. Stop paying money to the scammers, contact any pertinent institution, such as your insurer or bank, and get in touch with the fraud department of your local police. Scammers can only be found out if their victims come forward.

The opinions we expressed in this post are for general informational purposes only and are not intended to provide specific advice or recommendations.
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