A wildfire devours your home. Your retirement savings run out sooner than expected. A loved one dies suddenly, leaving you scrambling to pay their funeral and burial costs. These are the financial disasters you are trying to prevent by having the right insurance plan in place. But when you fall victim to insurance fraud, it’s as if you’ve spent years dropping coins into a bottomless pocket. What you thought was safe and protected — wasn’t. And the payout you thought you would receive after filing a claim — never arrives.
Every year, more than 7,000 insurance companies collect over $1 trillion in premiums. The sheer size of the industry makes it all too easy for families like yours to cross paths with an insurance scammer. Insurance fraud costs nearly $40 billion a year, which translates into swollen premium costs — up to $700 more per year — for the average U.S. family.
With our ongoing Asurea Scam Report, you can start to stitch up — or prevent — the “hole” in your pocket. For your investment to stay safe and protected, you and your family must avoid being duped and scammed.
Here are five case studies in common insurance scams that could be slithering your way:
Scam #1: Premium Diversion – “John”
John has been paying into his homeowners insurance policy for 10 years. In 10 minutes, he watched his home burn to the ground in a fire. It took only 10 seconds for him to discover that his trusted insurance agent had scammed him out of thousands of dollars. The money he was sure would save him in an unexpected disaster is now just smoldering ash.
In this case, John was the victim of “premium diversion,” or what the FBI’s Insurance Fraud website calls the most common type of insurance scam. It’s when “an insurance agent fails to send your premium to the underwriter and instead” pockets your premium for themselves. In these embezzlement cases, it’s as if you never paid a penny into it your policy.
Scam #2: Unregistered Securities – “Kate”
When Kate’s days of teaching long division and the Gettysburg Address to fourth graders were over, she tried to file a claim for her 403(b) Retirement Plan benefits. But she instead found herself filing a civil lawsuit against the insurance company that sold her a shady policy.
In 2009, this happened in real life when teachers in Texas purchased 403(b) Retirement Plans from a Houston-based insurance company. Authorities charged the company with embezzling more than $20 million from retired teachers and other public servants. And they did it by selling unregistered securities.
Unregistered securities are investment properties that have not been registered with the Securities and Exchange Commission. When Kate bought a policy that had not been registered, it was as if she were paying to change the laws of arithmetic or to resurrect Abraham Lincoln from the dead.
Scam #3: Prepaid Funerals – “Sal”
At 75, Sal’s health was going downhill and he was determined not to saddle his family with his funeral and burial costs. After seeking a policy review for the Final Expense insurance plan he bought several years earlier, he learned that he was one of 97,000 people across 16 states who were scammed out of their hard-earned dollars.
In 2013, six crooks almost got away with pilfering more than $450 million in a Ponzi-like prepaid funeral scheme. Millions of Americans just like “Sal” entered into contracts to prepay some or all of their funeral and burial costs, according to the Federal Trade Commission.
The fraudsters told customers their funds were being placed into final expense policies through third-party life insurance companies. In reality, they were falsifying documents for their own monetary gain. In the end, the crooked six schemed their way right into federal prison sentences.
Scam #4: Twisting – “Martha”
Martha’s retirement years are all about traveling, shopping and spending time with her grandchildren. She set up an Annuity plan to ensure she had enough cash to enjoy her carefree lifestyle. So, when an insurance agent called and offered to replace her existing policy with a new one, she hesitated. But the agent won, convincing her to ultimately switch to a new policy.
Only later did she learn she had been ripped off by what the Association of Certified Fraud Examiners, among others, calls “twisting.” In a twisting scam, an agent “twists” a customer’s arm until they agree to pay more money for what is essentially the same policy. The agent fails to help the customer, but succeeds in collecting a shady new commission on that sale.
Scam #5: Fee Churning – “David”
David had always been careful and smart when it came to managing his finances. He even bought a Medicare Supplement plan from an insurance company when he realized he needed a backup plan to cover his prescriptions, copayments and deductibles. After getting sick and losing his job, he tried to file a claim for his benefits, but his claim was denied because he had been a victim of a scam.
To avoid Medicare Supplement scams, make sure your are purchasing your plan from a reliable company. Check with the Better Business Bureau. To avoid Medicare Supplement scams, watch out for these warning signs.
Asurea offers Life Insurance, Mortgage Protection Life Insurance, Medicare Supplement Insurance, Final Expense Insurance, Disability Insurance, Long-term Care Insurance, Retirement Planning products and more. For additional information, click on the ‘Learn more’ button below. Want to have articles just like this delivered to your inbox? Just enter your email address in the box below and click ‘Subscribe.’
This information is provided for general consumer educational purposes only and is not intended to provide legal, tax or investment advice.