3 Common Types of Life Insurance Fraud to Look Out For in 2023

Life insurance is an essential financial product that helps people safeguard their loved ones’ future in case of an unexpected tragedy. However, just like any other financial product, life insurance is also susceptible to fraud. In 2023, as the demand for life insurance continues to increase, it’s crucial to look out for common types of life insurance fraud to protect yourself from potential losses. Here are three common types of life insurance fraud to watch out for in 2023.

Stranger-Originated Life Insurance (STOLI) Fraud

STOLI fraud occurs when someone persuades an individual to purchase a life insurance policy with the intention of selling the policy to a third party for a profit. This type of fraud typically involves seniors, as they are more vulnerable to such scams. The scammer may offer the policyholder a cash incentive to purchase the policy or may make false promises about the policy’s benefits.

One way to detect STOLI fraud is to examine the policyholder’s relationship with the insured. If the policyholder has no relationship with the insured, or the relationship seems unusual, such as a casual acquaintance or a distant relative, then it may be a sign of STOLI fraud.

Faked Death Fraud

Faked death fraud involves an individual pretending to be dead to receive life insurance benefits. This type of fraud can be difficult to detect as it requires the fraudster to produce fake documents, such as a death certificate, to support their claim.

To prevent faked death fraud, insurance companies conduct thorough investigations before paying out any benefits. These investigations may include checking the death certificate against public records, interviewing family members and friends, and reviewing medical records. Policyholders should also be aware of any sudden changes in their loved one’s behavior or lifestyle, which may indicate they are planning to fake their death.

Premium Fraud

Premium fraud occurs when a policyholder provides false information to an insurance company to receive lower premiums. This type of fraud may include misrepresenting the insured’s age, medical history, or lifestyle habits. For example, a smoker may lie about their smoking habits to receive a lower premium, or a policyholder may falsify their income to qualify for a lower premium.

Insurance companies can detect premium fraud by reviewing medical records, conducting background checks, and verifying income and other relevant information. Policyholders should also review their policies regularly to ensure that the information provided is accurate.

In conclusion, life insurance fraud can have severe consequences, including financial losses and legal penalties. Policyholders must be aware of common types of fraud and take steps to prevent them. By being vigilant and working with reputable insurance providers, policyholders can protect themselves and their loved ones from potential fraud in 2023 and beyond.