The Most Common Types of Life Insurance Fraud

Life insurance fraud costs the industry hundreds of millions of dollars each year, and it can burden family members with an agonizing set of circumstances. It often involves deceiving family members or business partners, and among those horrors, it translates to higher rates for honest policyholders.

In once case, a woman and her husband found that their son had somehow managed to change the ownership names and beneficiary on a life insurance policy. She and her late husband purchased the policy in 1961.

“Jean” says that, when each of the couple’s three children was born, she and her husband purchased a life insurance policy for them.

The first life policy was purchased in 1954. Jean later discovered that following the death of her husband in 2006, a review of the policies by her estate attorney discovered that his policy had been fraudulently changed.

The ownership and beneficiary names were changed – by her son and his son who named themselves as the owner and beneficiary.

She says her insurance company was notified immediately and she reported the fraudulent change in names. The company then requested a formal written letter explaining the fraudulent incident, but the damage had been done to the family regardless of the outcome.

There are five common types of life insurance fraud:

Stranger-Owned Life Insurance

This is when a stranger owns the policy on someone’s life. It is one of the biggest scams out there right now. The insurance is purchased in the intent of eventually transferring ownership to a third party, typically investors.


This is when an agent offers a “better” but more expensive policy to current policyholder. In reality, there is little to no difference between the two other than the fact that the agent will collect a nice commission.

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Fraud like this involves an agent increasing your net worth, making it appear that you can afford a bigger annuity. As a result, you may have to pay a large surrender fee in order to access your money.

Fake Death

A common but rather difficult type of fraud to execute is faking the death of someone who is insured. The person could still be alive or is some cases never even existed. Some people go to extremes measures to execute this, such as staged funeral and forging a death certificate.

Bait and Switch

In this scenario, you believe you are getting one type of insurance but soon find out that you are purchasing life insurance. The commission on life insurance is higher than most other types of insurance.

Before purchasing any type of life insurance, make sure you are going through a reputable company and you understand what you are getting. Investing in life insurance is an excellent way to protect you and your family in the future. If you treat purchasing life insurance like any other major decision, you shouldn’t run into any problems.

Tony Steuer is an author and advocate for financial preparedness. Tony Steuer, CLU, LA, CPFFE, helps people make sense of the financial world in a way that’s easy for them to understand. His books including, “GET READY!,” “Insurance Made Easy,” and “Questions and Answers on Life Insurance,” have won numerous awards. Tony is the founder of the GET READY! Initiative which includes the GET READY! financial organization system, the GET READY! Financial Preparedness Club, GET READY! Podcast, and the GET READY! Financial Principles, a best practices playbook for the financial services industry. Tony served as long-term member of the California Department of Insurance Curriculum Board. Tony is regularly featured in the media including the New York Times, the Washington Post, Fast Company, and other media. He has also appeared as a guest on television shows, such as ABC’s “Seven on Your Side.” Visit to join the GET READY! Financial Preparedness Club and access free resources.

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