Insurance Fraud: What Is It and How to Avoid Being a Victim?

Insurance is often considered an important financial tool that would protect you and your family from financial disasters and help you get right back on your feet. It’s one rainy-day fund that many people share to help recover after an unexpected event.

Depending on the type of insurance coverage, it may include protection from medical emergencies, theft, car accidents, or natural disasters. However, given the financial security insurance policies offer, it’s common for them to come with a significant price tag. And due to its high cost, many individuals are incentivized to commit insurance fraud and take advantage of the system.

But what exactly is insurance fraud?

Simply put, it is a criminal act in which either an individual or organization deliberately deceives an insurance company for profit or financial gain.

This can take many forms, such as, for buyers, making exaggerated claims, falsifying medical history and other pertinent documents, deliberately causing accidents, and worse, faking death. Meanwhile, for issuers, fraud can include premium diversion, policy churning, and asset diversion.

5 tips to prevent insurance fraud risks

 Because of the consequences of insurance fraud, it’s important to stay vigilant and take appropriate precautions. Here are some tips to mitigate risks:

1. Stay informed

One of the first things to do before signing up with an insurance provider is to research. Be sure to read thoroughly about the company’s reputation and customer reviews from credible sources. Not only does this help you avoid being defrauded, but this also ensures that you choose the right company and insurance coverage for your needs.

2. Transact with authorized agents or companies

As the insurance industry is full of fraudsters, it is vital that you only deal with licensed agents and legitimate companies. To be safe, before signing with an agent, you can ask them for proof, such as their license or permit.

3. Review policy terms

You are usually given a copy of your insurance policy, which outlines the terms and conditions. Take the time to read through them to fully understand the coverage provided as well as any exclusions and limitations.

4. Be cautious of unsolicited offers

Be wary of unsolicited insurance offers, particularly those that promise a lot for little to no cost. Take note: if it sounds too good to be true, it probably is, so be mindful of this red flag.

5. Record and document

Keep copies of payment records and documents of all insurance-related communications. This can help protect you in case of any potential disputes or fraudulent activity.

Want to learn more about insurance fraud? Check out our complimentary webinar: Countering Fraud Risks in the Insurance Industry: A Blueprint for Your Business