One of the biggest reasons why these life insurance policy scams happen time and again is because of the huge amount of money involved in it. Money is the key driving factor for any fraud and thus life insurance frauds are one of the most common ones to happen.
Another reason is that people are not aware much about the working of life insurance policies. Their unawareness is what makes them vulnerable to fraud agents.
There are different ways in which you can be duped. Here are some of the most common life insurance scams that occur so you can know when things are not right.
1. Theft of Identity
This is the most popular fraud. Identity theft occurs when a person obtains your personal information from you wrongfully and uses it for economic gain. Over the years, this type of life insurance scam has significantly increased due to the internet. As technology has advanced, more and more work is being done by just talking over the phone or the internet. This enables the fraud to commit more crimes.
Many scammers lure you via e-mails, phone calls, SMS will pose as agents and ask you for your personal information. They can contact you saying to buy a new policy or your existing policy needs some changes. The information asked from you can include the following.
a) Credit card informationb) Aadhar card numberc) Bank account number
All these are taken by the scammers as a form of information needed to apply for a life insurance policy but then are misused against you for money.
2. Fraudulent Company/Insurer
You may have heard in the news about the companies that didn’t have any existence taking advantage of people. Yes, this thing does happen. Some high-profile frauds research well and set up their own fake insurance companies.
These companies make they’re at a cost that is considerably lower than what the other legitimate companies are offering so that customers are attracted to them. Also, they can offer services such as easy sign-up, quicker response.
All they require is for you to enter your card details. As soon as they start getting customers and when the customers enter their details to get insurance the fraudsters run away with the money. Always make sure of the company before buying.
Not only the company but sometimes insurers are also frauds. They may present you papers that are real and take premiums from you as well, but they will not transfer it to the policy and instead keep it with themselves. This will lead to the company cancelling your policy even though you are paying premiums.
Churning is the act of replacing the policy which is already in force with a new policy by the agent, to earn more commission. This is also referred to as ‘Twisting’.
How does Churning Work?
In churning, an insurance agent will try to replace your existing policy with a new policy price of which is either same or a bit higher. He will try to do this without involving you as the policy structure is somewhat the same. This is done so that the agent can get an extra commission for the new policy he replaced with your existing one.
Churning to add to your commission is illegal and is a big fraud in India as well as many other countries. Agents must take the customer’s consent before making any alteration, modification to the policy.
4. Claims Fraud
You must have seen in many movies that how people orchestrate their or even their loved one’s death to get hold of the insurance money. While this happens in real life as well.
Faking or staging death to claim the insurance money is what claims fraud is all about. Many people fake their death or their family members to claim the life insurance policy death benefit. Fraudster fakes their death and disappear and return after some years.
Some famous life insurance fraud examples include one of the British ministers, John Stonehouse. The minister went missing from Miami and was later found in Australia with a different identity. He was later found guilty and was imprisoned for 7 years for fraud.
Some people even go to the extent of killing their loved ones to get the policy's benefit. Though sounds gross, but it does happen in some cases.
These were the most common scams under life insurance. Staying aware of the working of life insurance policy and knowing what you are getting into is very important. Some steps you can take to stay safe from these scams are as follows.
a) Check that the company you buy insurance from is trusted. Do not buy from the source you have not heard about and cannot be easily found.
b) Do not reply to unsolicited e-mails. If you receive an e-mail, call asking about your information then do not provide them unless you are sure of it. Check with the company’s helpline if they require such information or not.
c) Always read the terms and conditions associated with a life insurance policy thoroughly. Keep checking on the policy regularly.
d) Check with the company immediately if the agent asks you to pay more premium without any reason.
e) Always disclose full information to the insurer. Do not indulge in any unscrupulous activity yourself too. Getting caught can lead to a heavy fine and even jail.
5. False information
This case happens not at the insurer’s end but at the insured end. This happens when wrong information is entered into the application. This is also called misrepresentation or concealment of facts. This is one of the most common frauds.
Before buying a life insurance policy, you are required to enter details, regarding your basic information. This may also involve your medical details. Hiding any important information or misrepresenting information counts as fraud in this case.
For example, not disclosing some medical condition you may have. Another example is not disclosing you are a smoker, despite being one. To cater to this fraud companies, have medical tests. If the information doesn’t match the medicals, then the policy is rescinded immediately.
If you have a problem or you sense that you have been cheated, contact the insurer. If there is no response then immediately contact IRDAI’s grievance cell.