5 Common Life Insurance Scams
How do you know if you are facing the threat of a life insurance scam? From unfulfilled promises to fake companies, there are different ways that life insurance scams can cheat you of your money. Learn how to identify and avoid life insurance scams, and explore ways to maintain the financial stability you need.
How to Avoid Life Insurance Scams
It's important to never let your guard down and to seek only legitimate sources to answer any questions you may have about life insurance policies and how they work.
Here are 5 common life insurance scams:
1. Identity Theft
Life insurance identity theft scams are designed to steal your personal information and commit fraud. Identity scams use e-mail, phone calls, faxes or letters to request and collect your personal information. Common schemes include:
- Collecting your social security number
- Asking for a credit card or check number to process overdue payments
- Policy re-evaluation confirmation
While these types of requests seem innocent, it’s always a good idea to ask questions to determine the legitimacy of the contact. You should never feel pressured to give anyone your personal information. If an insurance company ever denies your request for more time or for a call-back, then it could be time to cut ties with that provider.
2. Fake Company
It’s not always easy to spot a liar. Some scammers will do their research, set up fake life insurance companies and run off with your money as soon as they can.
In order to avoid fake life insurance company scams, do some research of your own. Look up information about the insurance company and verify their accreditation.
3. Policy Switching
Know the difference between term life and permanent life policy types. If you are looking for a savings-based life insurance plan that can accrue a cash value, then you may want to consider a permanent life insurance policy.
Scammers may ask if you want to lower your premium, and they may then switch your policy type without letting you know. Be sure you’re getting the policy you want, and never let an agent switch your policy type between term and permanent life insurance without your consent.
4. Churning
Annuity-based life insurance scams like twisting and churning are based on confusing you with policy upgrades. Annuity-based insurance can offer a high payout based on investments made through your policy company. Sometimes, however, these companies do not offer the option for a payout until after a 10 to 15 year hold period.
Churning is the process of promising an immediate cash bonus for replacing existing annuities with newer (often more expensive) ones. This resets the access for your policy for another 15 years, with huge penalties for early withdrawal. Often, the new annuities don’t offer any advantages to the policy holder — they only exist to line the pockets of your agent with a large commission.
5. Twisting
Always ask questions and be wary about policy upgrades. Like churning, twisting is designed to shift around your annuity life insurance and line the pocket of a scammer. An agent may lie about your net worth to lure you into buying a larger annuity policy, often with restrictions, hidden premiums and a time reset on your cash-out terms.
More extreme forms of life insurance scams such as a faked death are less common but are highly destructive. Before you lock into a life insurance policy, educate yourself about insurance policies and how they work. There’s no better safeguard against scammers than being informed.
*Applications for insurance may be subject to acceptance by insurer. Rates and coverage amounts will depend upon the carrier selected.
