Insurance scams are illegal acts committed by the purchaser or seller of an insurance contract. People applying for insurance should know about its warning signals and preventive measures.
What is meant by an Insurance Scam?
Insurance Scam is an unlawful act undertaken either by the purchaser or the seller of an insurance contract.
The issuer’s scam includes selling policies from firms that don’t exist, failing to submit premiums, and churning policies to create more commissions.
In contrast, purchaser fraud contains exaggerated-claims, fake medical history, post-dated policies, false death or kidnapping, and murder.
How does an Insurance Scam function?
- This scam can be subjected to a trial for exploiting a contract of insurance.
- Insurance is for safeguarding its claimants against dangers, and not to serve as a mechanism for enriching the insured.
- Even though many cases have to do with policyholders trying to get more money with an exaggerated claim, there are also insurance scams that are practiced by the policy providers.
- More instances like falsifying a death or committing a murder for insurance money are infrequent.
How do you classify Insurance scams?
The classification of these scams is as follows:
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Application scams:
Application scam happens when you intentionally give fake information on an insurance application. Typically, it is the most common fraud in the insurance sector.
However, this can occur in case of any insurance policy. For example, if somebody gives fake health details while proceeding for the application of medical insurance or life insurance, it is also an application scam.
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Fake death insurance scam:
It is common for people trying to cheat life insurance firms by faking their deaths. It turns out to be a felony when somebody fakes being dead and tries to file an insurance claim.
In this fraud, the beneficiary always gathers the money and shares it with the claimant. Or at least that is the idea. The truth is, it is more difficult to get away with falsifying your death.
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Inflation Insurance Scam:
This scam is simply adding a little to the bill while filing your insurance claim. The inflation scam is like getting a mechanic update to your automobile instead of repairs, then sending the total bill to your insurance firm.
Likewise, it is like a doctor charging your health plan for a few tests that were not run or that you don’t require.
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Ghost brokers insurance fraud:
Ghost brokers play the part of a proper insurance broker and sell “policies” to innocent victims.
These policies generally fall into one of the two categories: taking out actual insurance policies with fake details being doctored and sold on, or designing false insurance policies to make them look real while duping the purchaser.
The insurance policy is not valid or legal in this type of insurance scam, thereby leaving the policyholder vulnerable to the results of being uninsured.
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Fake policy insurance scam:
The fake policy insurance scam is a popular type of scam. In this, the victimizers pretend to be insurance agents who provide a phony policy and steal the premiums paid by their beneficiaries.
The victimizers utilize brand identification, just like in several other financial frauds, and build a particular trust before setting up the policy payments.
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Eligibility insurance fraud:
In this fraud, the scammer provides fake details to get eligibility for health insurance.
For example, let us say that giving the employee’s incorrect employment status for gaining eligibility to a health policy with extra benefits is eligibility fraud in the insurance sector.
In another example, let us say an employee who works only part-time, produces fake records of employment status for being eligible for the firm’s health coverage, is also committing eligibility fraud.
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Theft of medical identity:
In this scam, the name of a policyholder is incorrectly used without the approval or knowledge of the person, thereby gaining access to free medical services or treatment.
In this context, fake insurance claims are submitted to acquire free services. This, in turn, results in the addition of inexact data to the policyholder’s medical records.
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External and internal frauds:
External frauds are the scams committed by either customers, service issuers, or beneficiaries against the insurance firm. Whereas, Internal scams are committed by agents or insurance firms against the customer.
Preventive measures:
The tips listed below will help you prevent insurance scams.
- You should make sure not to sign on blank insurance forms.
- Always keep your insurance details safe so they don’t get stolen or used against your consent/knowledge.
- While using a credit card online, please make sure only to use authorized sites.
- It’ll help if you keep a disposable camera in your car and capture images of damage after an accident.
- It is necessary to maintain and check complete records of your banking and financial transactions.
- In the case of a medical insurance fraud, it is vital to check whether the amount on the bill corresponds to the medical treatment you have taken.
- Remember to keep a copy of any document you’ve signed.
- It is best not to share information about your membership, insurance certificate, or give anyone access to your code on the e-system.
- One of the essential tips to prevent fraud in the insurance sector is to avoid submission of original documents. Remember that insurance firms don’t ask for original copies of documents such as passport, driving license, etc. Therefore, if you encounter any person asking for your original documents, report them to the insurance firm immediately.
- It is necessary that people carefully inspect the policy brochures before buying a life insurance plan.
Take Away
People interested in purchasing insurance policies should remember that they need to educate themselves about insurance scams and their warning signals if they want to stay safe.
In addition, they should take responsibility for protecting themselves against these scams.
