Updated: Mar 14, 2024

How to Avoid Life Insurance Fraud

Learn about the most common types of insurance fraud and how you can avoid them so that the beneficiaries receive the death benefits properly.
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Be careful about these situations.

This is a case in which you are the target and victim.

If your life insurance agent ever starts getting pushy and insists you need a new and better (think: more expensive) insurance policy, that may be their way of trying to get a new commission.

Sometimes, the policy might not even be any better than what you have; it’s just different.

Now, that said:

If you have a life insurance policy, but you’ve had a couple kids come along since you originally bought it, you probably do need a new, more expensive, life insurance policy since the payout may be enough to support, say, your spouse and one kid but not your spouse and three children.

But if something seems fishy about the hard sell your agent is giving, listen to your gut and stick with the policy you have.

Paying an insurance agent and not the company


Your insurance agent should never ask you to make out a check or do an automatic withdrawal into his or her bank account.

If you aren’t paying directly to the insurance company, that may be a sign that the person you’re working with is shady.

Somebody forges your signature for a life insurance check

An example:

In 2019, a Pennsylvania man was going to receive a life insurance payout -- $17,000 – after his mother died.

Instead, his sister managed to get her hands on the check.

She signed the check and cashed it (to be fair, the check was mailed to her house, but she might have given a heads up to her brother, who couldn’t figure out why he hadn’t been paid and wound up calling the police).

In any case, somebody forging a signature or cashing a life insurance check meant for somebody else is yet another example of life insurance fraud.

Faked deaths

You won’t do this, but some people do.

Thieves will attempt to collect the insurance payout for a person who is still alive, or they’ll make up a fake identity and then report the death and try to get the money.

It does sometimes happen.

A Minnesota husband and wife got into hot water in 2019 – and are now in jail and will be for several years – for trying to cheat an insurance company out of $2 million.

Anyone thinking of trying this shouldn’t unless you think it would be fun to someday be caught and thrown into the slammer.

Buying a policy for someone and not telling them

And then, of course, killing them and making it look like an accident or at least a killing that you weren’t involved with.

Is this rare?

Hopefully. But it isn’t rare enough.

For instance, in 2020, a reality TV actor was charged with hiring somebody to murder his nephew; the uncle had been secretly paying premiums on a $250,000 life insurance policy.

Here's the good news, though. If this ever happens to you, it may not involve your murder.

In 2020, an insurance agent was arrested for creating numerous fake life insurance policies on real people. He paid for the premiums with the victims’ bank accounts (just another reminder, folks, to look at your bank account on a regular basis and make sure you can account for every automatic withdrawal).

What was in it for him? Was he hoping some of the victims might be hit by a bus, and then he would get the money?

Probably not. He was creating fake policies – 150 in all, on 120 individuals – to get the commissions.

He was cheating the insurance company and the victims who were paying for these life insurance policies without knowing it.

What Can Happen to People Engaging in Insurance Fraud

Oh, you don’t want to know.

But if you’re thinking, “Yes, I really want to know! What are the consequences of insurance fraud?”… well, okay.

Here it goes:

  • You could go to jail. In the United States, there is no federal insurance law. Every state does its own thing. So it depends on the state, but depending where you live, insurance fraud may be a felony and not a misdemeanor. For insurance fraud, you can go to jail for a long, long time.
  • You could be fined. In Michigan, just to pick a state at random, not only might you get four years in jail for insurance fraud, you could be fined up to $50,000.
  • You might have to pay back what you stole. Well, that’s almost a given.
  • There could be extra charges, like having to pay court costs and lawyer’s fees.
  • The fun really never ends. Once you get out of jail for life insurance fraud, you have that felony or misdemeanor charge hanging over you for the rest of your life.

As for the victims, the consequences can be terrible, even if unknowable.

If you’re bilked out of thousands of dollars that should have come to you – or never been taken from your bank account – and you don’t get paid back, or if it takes years to get reimbursed, who knows what you might have done with that lost money?

Insurance fraud, whether it’s life, health or car insurance, is a non-violent crime (usually), but because of the thousands and sometimes millions of dollars involved, particularly with life insurance, it’s a very serious one.

How to Prevent Life Insurance Fraud

The main thing is to pay attention when you apply for life insurance and answer all of the questions truthfully.

Do that, and you should have nothing to worry about.

Use reputable insurers and agents

You also want to be careful about what insurance agent you’re working with.

Look for reputable insurers, and make sure your agent is licensed, and then verify the license through your state’s insurance licensing board or department of insurance.

If that sounds too difficult, at least do some searching on the internet about the insurance agent you’re working with. You should figure out pretty quickly whether you’re working with somebody reputable or a little fishy.

For instance, a bad sign is no Internet presence whatsoever, and of course, it won’t look good if you find a bunch of lousy reviews about an insurance agent you plan to work with, from irate and unsatisfied customers.

You might also want to ask for a referral from a friend or family member you trust.

There are a lot of reputable life insurance companies and honest brokers out there. It isn’t hard to find them. But if you aren’t careful and pick the first person you find on the internet or somebody who approaches you, then, sure, you might end up working with some shady agent.

Monitor your bank accounts

If you have a bank account, as one would hope, make sure you keep a close eye on it.

Whether it’s insurance fraud or having somebody draining your bank account with purchases made with a fake debit card, you won’t know you’re being ripped off if you only give your bank charges a cursory glance – or especially if you never look at them.

Look at those bank charges, preferably every day. It’s a good way to notice if you’re being robbed online, which, yes, is rare and unlikely but possible.

Checking your checking account regularly is also a good way to make sure you’re staying within your budget.

Assist elders or parents with policy application

If your aging parents or any elderly relative is taking out a life insurance policy or any insurance policy, see if they’ll let you help them with the application.

The last thing you want is for them to become a victim of insurance fraud.

Bottom Line

Committing insurance fraud is probably the farthest thing from your mind.

To those who might be reading this and is planning on ripping anyone off via some life insurance scam, all we can say is that we hope you’re spectacularly unsuccessful, and that when you wind up in jail, you get along well with your cellmate.

The rest of you reading this, it isn’t likely that you’re ever going to accidentally commit life insurance fraud.

But, it could happen, and it isn’t likely that you’re going to be a victim of it, but you never know. Stay alert, and choose your friends wisely.