Definitive Guide to Insurance Fraud

The insurance industry collects more than $1 trillion in premiums each year in the United States. Insurers as well as the insured are trying to take a piece of that pie. When they do it in a dubious way, we call it insurance fraud.

When we think of insurance fraud, we usually imagine individuals or people collaborating to defraud an insurance company. However, elaborate schemes exist to scam people off of their money by the insurance companies as well, or by imposters. In this article we will take a look at insurance scams from all angles.

If you have had the bad luck to fall for a scam, you could spend years losing money without knowing it. You’d get no real benefits, and worst of all, it prevents you from getting expert help.

Not surprisingly, insurance scams are sprouting like mushrooms after the rain. From car to life insurance, fraudsters look at it as a low-risk high-reward opportunity.

If you fell for one, it’s not your fault. Scammers reach out online, if not in person, with well-thought pitches designed to make you say “Yes”. But this guide will give you the chance to take control and help you avoid insurance scams.

Insurer Scams

Insurer Scams

When Does Insurance Become Fraudulent?

People make mistakes all the time. Some decisions can be undone, but others can’t. Is it possible to recover from a permanent loss? Insurance agrees to share with you the risk of unexpected events, bringing peace of mind.

But insurance doesn’t cover everything. Companies agree in advance what cases they cover, what they will do, and for how long. It may seem you’re wasting money on unneeded protection, but if anything happens, it turns into a lifesaver.

Fraudulent insurers charge you for services you didn’t request or need. They misrepresent the contract or change it without your permission. You’d spend decades paying for insurance you don’t really have.

Why Are Scams Prevalent?

Broadly speaking, today’s insurance challenges are over-regulation, lack of trust, and competing against large providers

  • Competition: According to the NAIC, there are at least 6,000 insurers in the US alone. New companies can’t come up with a unique proposition, and most clients go to the largest brands.
  • Ambiguity: No matter the planning, nobody can predict the future. Dishonest insurers can profit from grey areas by double-speaking.
  • Loyalty: Insurance isn’t easy to sell, but once you land a client, he will likely stay for years. For a scammer, that’s easy money coming in every month.

If nobody notices, fraud becomes convenient. A company can hook you with freebies (such as the free first year) to make you commit to an expensive long-term contract. Don’t you like it? There’s a cancellation fee for that.

In an insurance scam, losing money is the best-case scenario. Trust they don’t overcharge you and hope they don’t steal your information.

The Real Problem With Fake Insurers

Most people don’t understand the basics of insurance. If they can’t even read their contract, what makes us think they will notice the industry scams?

When choosing the company, the average client will either:

  • Pick the most popular brand
  • Go with the one referred by friends
  • Choose a company with unique terms and offers
  • Pick an insurer who tells them what they want to hear

If the client sees insurance as a burden, they’ll go with the first options without much research. Unless they find out problems, clients stay with one company passively for years.

If that’s mass psychology, it’s evident why scams are so frequent. As a con man, you only need to:

  1. Tell them what they need to hear and offer a super-deal. Something like “Free for the first year. Complete risk coverage.”
  2. Change/update terms in the middle of the contract, hoping clients won’t notice. You can charge for long-term service, add-ons, and a bunch of made-up fees.
  3. Create a long-term contract for lasting profits. Also, make victims work for you with referral reward programs.

Your protection is not a joke. You can’t blindly trust any “expert,” hoping they’ll take care of you in the bad times. You need a thoughtful insurer who plans for the unexpected, has the right history, and countless case studies to prove his success.

Company Distinctions: Legit Or Fraudulent?

Company Distinctions Legit Or Fraudulent

Even with experience, it takes time to make a good decision. Although some red flags can help you detect a scam, the conclusion requires research and comparison.

  • Pressure tactics prevent research. They rush with paperwork to make you overlook the conditions.
  • Direct reach-out prevents comparison. You didn’t call them, they did.

Here are four distinctions:

Blind Trust VS Thoughtful Planning

“How could this agreement go wrong?”

Legit insurers plan for the unexpected. They plan for the bad scenarios and don’t send you the contract until you are aware of the risks.

Nobody likes long paperwork, but this preparation will save you many losses. If your insurer can sign you in within minutes, they may be hiding information or working on their interests. Do NOT assume the agent knows what’s best for you.

Inconsistent VS Reliable History

You don’t just want insurance to reduce risk and responsibility. You want others to help you when things get tough. Trusting the wrong person will only put things worse.

The inurance industry is one of the biggest targets of fraud from within and from the outside, so you can’t assume every company will get your back. Everybody looks legit on a website, but what do others say about them online? If there’s bad reviews or no references, that insurer IS the risk.

Some insurers include video testimonials, and they can send you case studies if you contact and ask for it. Legit companies are easy to reach and have no problem verifying their social proof.

Rushing VS Listening

People don’t buy what they don’t understand or need. “High-quality service” means absolutely nothing if the client thinks: “It may not work for me.”

A useless service with a deep discount is still useless. Imagine you offer your clients a flat fee, fast sign-up, no background needed. That’s zero customization and not listening to the customer. 

A scammer who sells generic services can’t hook victims without a good price. If it looks too good to be true, a fool will eventually buy into it.

Outbound VS Inbound Tactics

Inbound marketing has replaced intrusive tactics. It’s cheaper for sellers and reliable for clients. The insurer offers the buyer free useful advice, which creates a trust to move towards a potential sale. The sales funnel pulls the client by adding value upfront.

But don’t confuse pull with push. Here, the client has to blindly trust the seller’s words and do what they say. When pushing, sellers use low prices and promotions to reduce the risk and get clients via phone calls, cold email, and messaging.

Legit companies also use these channels, but only to contact people who already know them and expect their call. They don’t bother strangers.

You can find these insurers ranked on search engines, on social media, or their referrals. Dishonest agents, however, rely heavily on ad campaigns and direct interaction.

Legal Rip Offs Scam Without Scamming

Clients expect insurers to tell them the truth and work on their best interests. But that’s a matter of ethics and principles. Although the best insurers bet on their customers, nobody is forced by law to work on your best interests.

So if there’s a strong incentive to cheat the system, you’d be the first to suffer. No matter the offer, if firms value profits more than their customers, they can’t help you.

The problem? They don’t need to tell you what you don’t know. If the program doesn’t meet your expectations, they blame you for not having planned for it. Here are five legit ways to exploit an ignorant client:

Confidence Tricks

The client and insurer have agreed on the terms, but the client needs to pay upfront before signing. (see advance fee scam) The client— who was deceived with fake reviews and offers— pays, expecting to get the contract.

The company will promise to help but do nothing except asking for money. They keep asking upfront fees until you start to suspect and say No, and then disappear. 

Policy Sliding

You let clear what you want to pay for, which the insurer agrees. But on the contract, they’ve added redundant/bonus services you didn’t request. If you’re in a rush and miss it, they’ll sign you up for extra recurrent payments and drain your savings.

If you find unexpected clauses as you read the contract, do not assume it’s the normal procedure. It could be a policy you don’t need or a service fee to overcharge you. A legit company will explain the agreement and fix it in case of a “computing mistake.”

Undisclosed Terms

For a con man, it’s not about what you sell, but how the client sees it. If the client doesn’t notice that some conditions are missing— which benefit the insurer— you don’t tell him.

You let the victim live with their expectations and then charge them the real amount. If they complain, you blame them for not preparing enough. 

Who knows if the agreement is subject to changes? Or if they auto-renew the contract without permission, so you pay a cancellation fee?


Companies prefer their clients to buy all insurance from them: auto, life, health programs. If you make all the contracts with one company, they merge them into one and make a discount of 5-20%. If you’re going to buy all anyway, bundling saves money.

The problem? You’re betting on one company, hopefully legit. With unbundling, you work with multiple insurers. If one of them is fraudulent, it won’t affect your other programs. Relying on a single one puts you at risk of losing everything at once.

Paying 5-20% less can be tempting. But is the price worth the risks?

Examples Of Insurers Fraud

Examples Of Insurers Fraud

Fake Medical Insurance:

A skilled salesman pitches you for a health program that does nothing at all. When you need it the most, you find out this fake insurer doesn’t cover your accident. But by that time, it’s too late to get help from real health insurers.

You pay the agent’s salary and receive phantom help.

Car Insurance Bait & Switch:

A dishonest car insurer attracts buyers with low prices and deep discounts. On your next policy renewal, you pay the standard amount, usually overpriced. 

These one-time promotions lead to several policy cancellations, which is why they also charge you to unsubscribe.

Mortgage Protection Life Insurance:

The company promises to take care of your mortgage if anything bad happens to you. The catch? Most people aren’t at that risk, so they’ll pay high rates for a program they don’t need.

Even if you do have an accident, bogus insurers have countless exceptions to exclude you from their benefits. If you pay for mortgage insurance, it may never pay off.

Illegitimate Denial:

Deceitful practices by insurers include acts such as the rejection of valid insurance claims, the refusal of cover for certain conditions that should be covered, the failure to investigate claims properly and the deliberate underpayment of claims.

This is a widespread practice. It includes techniques such as:

  • Sending an invoice for benefits clearly covered by your policy;
  • Automatically rejecting claims;
  • Inventing excuses for rejecting or underpaying claims;
  • Deliberately sending you confusing documents in the hope that you will overlook the fact that they have overcharged you or denied your legitimate cover.

The list of examples could go on, but no matter how common it may be, this is not a legal business practice. It is fraud.

Fake Insurance Claims By Policyholders

Fake Insurance Claims By Policyholders

The insurance industry is presumably the second largest victim of fraud after banking. Insurance industries report a possible 3% to 10% of all insurance claims are frauds.

There are many different ways in which people make fraudulent claims to trick an insurance company into paying out large sums of money. When these fraudulent claims are paid out, the effect trickles down the ladder to the policyholders.

If you don’t qualify for a program, you can lie or fake your documents to trick the insurer. Not only you cost them money: in a limited program, client fraud prevents the right people from getting the insurance they need.

The overall percentages of insurance rates and premiums are increasing across the board and the taxpayer has to bear part of the financial burden. Let us take a look at the most common types of insurance fraud.

Application Fraud

Application fraud occurs when you knowingly and intentionally provide false information about an insurance request. This is generally the most common form of insurance fraud.

It can involve any type of insurance. Someone who gives false health information when applying for health insurance, for example, has committed application fraud. Another person could apply for rent insurance and claim double the value of their personal property.

False Claims

One of the most common types of insurance fraud is the assertion of a claim for an accident that never actually occurred or was orchestrated.

This happens in various ways and for a number of reasons:

  • Slip and fall claims are probably the predominant type of staged accidents, as injuries are difficult to prove or disprove and payouts can be potentially high.
  • If a car owner owns his car directly, he will sometimes damage his own car and make an accident claim. If they then receive a payout from the insurance company, they will either have the car repaired cheaply or simply not get it repaired.
  • Homeowners will also occasionally make claims for alleged accidents or for self-inflicted damage to property. In some cases, a building can be worth much less than what it is insured for. The owner can in extreme cases set the building on fire – to make a fraudulent insurance claim.

In some instances, policyholders are engaged in the fraud, in others they are just innocent victims.

Inflated Claims

Inflation fraud means when a mechanic upgrades your car instead of just repairing it and then sends the entire bill to your insurance company. It’s a doctor who bills your insurance company for some tests that he didn’t actually perform or that you didn’t need. It’s the claimant who slips and falls and says he can’t move his arm and goes out to play golf the next day.

Inflated claims can occur at any time, but they are usually most common in the wake of natural disasters. Whenever a natural disaster is big enough to affect an entire region, the area is almost inevitably flooded by swindlers and fraudsters trying to take money from insurance companies.

In some cases, homeowners knowingly sign excessive claims for work that was never done, and in other cases they are unaware that the work that is charged to the insurance company was never done.

Some kinds of normal home maintenance are also ripe for excessive claims, such as roof repairs. In some cases, inflation is not due to work not being carried out, but the insurance company is charged for high-quality materials, which are exchanged for subordinate materials when the work is carried out.

Identity Theft Fraud

Sometimes an attempt is made to assert claims under another person’s insurance. This is particularly common with health insurance companies. Individuals receive someone else’s identification information and then try to make claims against their insurance company.

Sometimes these are unjustified claims for legitimate treatment, but often this is simply a way to pocket cash. A common scam, for example, is that criminals steal the identity of elderly people from Medicare. They then use the stolen identity to order expensive medical equipment, have it paid for by that person’s insurance company and sell the medical equipment further on at a profit.

Faked Death

It is surprisingly frequent that individuals try to defraud life insurance companies by faking their own death. If someone plays dead and tries to make an insurance claim, it becomes a capital crime. Often in this system the beneficiary will collect the money and share it with the claimant.

At least that’s the idea. In reality, it is much harder to get away with faking your own death than most people seem to think.

Stop and Prevent Insurance Fraud

Stop and Prevent Insurance Fraud

We buy insurance to protect during critical events. Don’t let scammers take advantage of trust, because losses could be permanent. Who will you trust with your protection?

Ever fell for one? You’re not alone. What matters is to stop the scam and get help.

Cancel The Contract First

If you’ve been working with dishonest insurers, stop. Cancel even if it costs money: it’s better than trusting the wrong people.

Before unsubscribing, you may want to gather some contact data to report the scam. The institution that investigates insurance scams could contact the firm about the complaint and recover the losses.

Report The Scam

Visit the Coalition Against Insurance Fraud (CAIF) to learn more about addresses and toll-free numbers by department. The sooner you report to the right person, the better.


Has the insurer charged you recently? You may still be on time to request a chargeback on your bank. If you gathered data when filing the complaint, showing it to your bank may speed up the process.

Remember that your chances to recover money are low if the con man used confidence tricks, policy sliding, or hidden information.

Find Better Insurances

Find Better Insurances

How do you prevent scams? Be the one who contacts insurers, not the other way around. If you get it wrong, at least it happened due to your research and not for listening to a stranger.

The next time they call your number, don’t let them fool you with limited offers and the “fear of missing out.” If you had no insurance this whole time, you probably don’t need their deal.

As a new client, avoid long-term plans. Although they’re cheaper, you may end up paying for something you won’t need. 

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