Top 5 Life Insurance Scams
Posted on January 21st, 2010
Life insurance is touted as a smart purchase for those wanting peace of mind regarding estate planning. Unfortunately, there are predators using the system to conduct life insurance fraud on unsuspecting victims. Annually, insurance fraud costs Americans at least $80 billion, so let’s take a look at how these scammers are stealing our money.
Common Fraud Practices
Some of the most common life insurance scams include:
1.) Stranger-Owned Life Insurance: Wall Street is notorious for creative investment options and life insurance policies are their newest invention. Wealthy, aging Americans are being encouraged to buy life insurance policies that make third party investors the beneficiaries. In the agreement, investors pay the premiums for a period time as a loan to the policyholder. If the policyholder dies during that initial time period, the system will work itself out, but if they live longer, they must pay back the money that was paid out in their name or risk having a complete stranger own their life insurance policy. Those policies are then bundled and sold as bonds.
2.) Bait and Switch: In 2004, authorities broke up a scam preying on Florida’s elderly population. Insurance reps lured seniors into a false sense of security and promised them savings on their health insurance. However, the paperwork the hapless seniors signed were actually whole term life insurance policies that earned the rep a sizable commission.
3.) Variable Annuities: Whole term life insurance is often used as an investment vehicle. However, those with moderate incomes don’t need to take advantage of this strategy, but that does not prevent unscrupulous salesmen from convincing them otherwise.
[source: Adams/AP/AP]
4.) Life Insurance Flipping: TV personality Larry King fell victim to this type of complicated life insurance scam that involved purchasing and then reselling life insurance policies in his name, mostly for the profit of the brokerage representing him. Ultimately, this strategy is not in the best interest of the policyholder as they may be uninsurable after conducting too many of these transactions.
[source: Rontello]
5.) Faking Death: Policyholders also get into the act of life insurance fraud, and the most common scam they conduct is faking the death of the insured. From couples to individuals, people try to play dead to collect on their policies, but that strategy often backfires and ends up costing them their freedom.
Consumers looking to purchase life insurance need to do so cautiously to avoid falling victim to a scam. By making sure your insurance sales representative is legitimate, reviewing every document before signing it and purchasing a policy for your exclusive use only, you can prevent yourself from falling victim to the trend.
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