A Buyer's Guide to Avoiding Life Insurance Fraud

by Miranda Marquit

Man holding out contract

With the opportunity to purchase insurance online, as well as a proliferation of insurance agents, it can be difficult to determine which agents are legitimate, and which are out to scam you. Even if you work with an insurance agent with the proper paperwork, it's not always enough to protect you from life insurance scams. You need to be careful, do your homework and pay attention.

Watch Out for Bogus Life Insurance Agents

You might encounter them online, in person, or over the phone. These phony insurance agents promise to get you a quote - they may cold call you - and ask for your Social Security Number and other information. After giving you a bogus quote, or promising to get back to you, these scammers have enough to steal your identity.

Another issue is fraud aimed at senior life insurance. There were a number of instances related to Medicare Part D in which scammers fraudulently enrolled seniors in programs to get the commissions. Some of these techniques can be translated to life insurance policies. It's important to be careful, and make sure that you're dealing with a licensed insurance agent.

Do Your Homework Before Purchasing Life Insurance

Before you agree to purchase a policy from a life insurance agent or company, you should do your research. Each state has an insurance board that licenses and regulates insurance companies and agents. Most states require agents to display their paperwork, but you're safer if you check with the state board directly, since some false agents might have forged copies of a license, or outdated licenses that no longer apply.

If you want to purchase life insurance online, look on the web site for the name of the states they're registered with and check with that insurance board to verify the registration. Or, you can simply check with your state's board to ensure that the company is licensed in your state.

Finally, you can check with the Better Business Bureau. It's a good idea to deal with companies that register with the BBB, and that adhere to ethical standards. You can check with the BBB to see what kind of complaints have been lodged against the life insurance company, and to find out if there are charges of fraud or other problems that seem suspicious.

Keep an Eye on Your Life Insurance Agent

Unfortunately, things get a little trickier when properly licensed insurance agents go bad. Recently, in Arizona, two life insurance agents were charged with stealing their clients' funds. Working for a subsidiary of Hartford Financial Services Group, they set up a bank account in the name of a corporation they had created. When clients paid their life insurance policy premiums, the agents put the money into their bank account - instead of sending the premium money to the life insurance company's payment center. In addition to being accused of stealing premium money, the two are also suspected of stealing funds from investment accounts opened by clients thinking they putting money into Hartford products.

This story is a poignant reminder that we can't always trust that a life insurance agent is going to remain honest. In order to keep track of your finances, you need to have a good idea of where your money is going. If life insurance premium payments are mysteriously "lost" on a regular basis, or if you receive letters that indicate that your coverage is about to lapse - and you know you've paid your premiums - you could be seeing red flags about your insurance agent's activities.

You should also be wary of writing checks out to your insurance agent, or to a company formed by your insurance agent. Instead, write checks out to the insurance company. Send checks directly to the life insurance company's payment center, rather than giving them to your insurance agent. You can also arrange with the insurance company to set up a direct withdrawal system so that the insurance company withdraws money for your premiums automatically. This way, you can be sure that your life insurance premiums are going to the right place.

Know What Life Insurance Products You're Paying For

In some cases, we start signing policy paperwork, and just keep going. It may not be a straight insurance scam, but some unscrupulous insurance agents may try to slip something by you, signing you up for coverage you don't need or want. Some insurance agents, working on commission, may try to get you to sign up for additional products, such as certain annuities, that may not be in your best financial interest. Make sure you read all of your paperwork before signing to ensure that you aren't being charged extra.

You should also examine your regular statements from your insurance company. These statements break down the coverage you are receiving. Make sure this information is accurate, and that you're truly getting what your agents has sold you. Some agents will tell you that you have certain coverage for a great price, but in reality you are paying a cheaper price for a cheaper plan with inadequate coverage. Compare your paperwork with what the insurance agent has told you.

Before agreeing to a life insurance product, make sure you know your own needs. Consider the coverage you'd like, and the type of policy you want. Don't let your insurance agent convince you to get something that you don't need. You should also find out how your life insurance agent gets paid for other financial products he or she sells. In some cases, he or she might recommend a particular annuity or fund because there is a bigger kickback involved. In such a case, your life insurance agent may be doing more for his or her own interests than helping you.

Most life insurance agents are not out to scam you, but you can't be too careful. It's up to you to avoid life insurance pitfalls. Before you hand over your money - or your personal information - make sure you are dealing with a legitimate life insurance agent, offering services that will actually benefit you.

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