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The typical definition of fraud is that it is intentional deception that will harm someone else, physically, financially, or in other ways. Life insurance fraud is very specific. It refers to acts of intentional deception on the part of those applying for or those selling life insurance. There are many different ways this type of fraud manifests.
Some life insurance fraud is committed by people buying insurance or who already possess it. The most common kind is making deliberate misstatements on applications for insurance. Any type of health information on a policy must be accurate, including a person’s age. Smokers have to ‘fess up to their behavior, and if people have medical conditions that may raise the cost of insurance, they still must claim them if required. Though life insurance will be more expensive if a person has medical conditions, a policy may be worthless if a person lies on an application. This voids any contract because it is fraudulent, and might leave people’s survivors with no money to collect if fraud is proven.
Life insurance fraud can involve some fairly elaborate schemes. People have faked death so that family members can claim policies. Others create a false identity that they can then “kill” for the money. As unsavory as these crimes are, they are at least not physically harming an actual person. Unfortunately, there have been many instances where someone has killed someone else in order to collect on life insurance. This is not only fraudulent but typically considered as first-degree murder.
One type of life insurance purchase that may be fraudulent or illegal at times occurs when companies purchase life insurance on employees, sometimes called dead peasant’s insurance. This is not illegal provided employees grant permission for the company to insure them and collect funds if they die. When an employee does not consent to this, it may be viewed as a fraudulent act.
A few doctors can get involved in life insurance fraud by acting as medical examiners that certify the health of people applying. With the person seeking health insurance, they deliberately falsify information on medical exams. This may occur for people expected to live a long time despite medical conditions, or it may be collusion with a disreputable agent in what is called viatical fraud.
In viatical fraud, agents recruit people with terminal illnesses to buy numerous policies, all of which will have an annuity. The person gets some money to make it to the end of his or her life, but the majority of the funds will end up in the pockets of third-party investors after the person’s death. Doctors may be involved to certify the “health” of the severely ill person, who also lies about medical condition, and the broker or salesmen is clearly part of the scheme too.
Along with viatical life insurance fraud, other types of fraudulent activities may be practiced by agents selling insurance. Sometimes agents ask people to sign blank forms or offer people new deals on insurance that drain their present insurance to pay for the new policy. These can be fraudulent acts, and people looking to purchase more insurance should be aware of them.