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Car insurance fraud: What you need to know

Defrauding an insurance company can usually be classified as either hard or soft fraud. Both types are illegal.

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Andrew HurstSenior Editor & Licensed Auto Insurance ExpertAndrew Hurst is a senior editor and a licensed auto insurance expert at Policygenius. His work has also been featured in The New York Times, The Wall Street Journal, Forbes, USA Today, NPR, Mic, Insurance Business Magazine, ValuePenguin, and Property Casualty 360.

Updated|7 min read

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Insurance fraud of all types results in losses of hundreds of billions of dollars per year, according to the Coalition Against Insurance Fraud. [1] Many forms of fraud involving car insurance contribute billions to this total — and they’re more common than you’d think.

Key takeaways

  • Car insurance fraud is often described as either “hard” or “soft” fraud.

  • There are a few common types of car insurance scams, including fake claims or staged damage.

  • Withholding or misrepresenting information when you apply for car insurance is also a form of fraud.

  • If you commit car insurance fraud, you could lose coverage and have your claims denied, be fined, or go to jail.

Usually, auto insurance fraud happens when drivers, mechanics, or scammers lie to an insurance company to get an inflated payout or cheaper insurance rates. No matter the form, insurance fraud can carry serious consequences.

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What is car insurance fraud?

Insurance fraud is any false or misleading act that someone does to get money from an insurance company, either as a payment or through lower premiums. 

There are many different examples of insurance fraud, but authorities usually classify fraud into two groups. [2] These are:

  • Hard fraud: Hard fraud is when someone deliberately causes property damage or fakes an accident or theft to a claim in order to pocket the insurance money.

  • Soft fraud: Soft fraud is more common, and can involve legitimate damage that you exaggerate to get a bigger payout. Forms of premium evasion— where you give misleading information to a carrier to lower your insurance costs — are also a type of soft fraud.

There are other types of auto insurance scams that deal more indirectly with insurance companies. In these situations, scammers target insured drivers to get an insurance payout or to get money directly from the driver.

Examples of hard car insurance fraud

Hard fraud is less common than soft fraud, but it can also involve much larger losses. For example, scammers can defraud insurance companies out of tens of thousands of dollars by claiming damage to an expensive car that never actually happened.

Hard fraud is typically more serious, and it can be a felony if you’re convicted. Some examples of car insurance scams that could be considered hard fraud are:

Staging a car accident

A staged car accident involves a driver who intentionally causes a crash in order to pocket the insurance money after the accident. Examples of fraudulent car accidents might be:

  • When an oncoming driver hits you on purpose after waving you through a left turn

  • If someone intentionally hits the back of your car as you make a right turn into their lane

  • You pull into traffic from a curb and someone swerves on purpose to hit your side

  • Someone driving in front of you stops suddenly to make sure you hit the rear of their car

These examples of fraud are effective because the scammer can make it appear like you really were at fault for the damage. They can blame you for the damage (like after a legitimate accident) and make a claim with your insurance company.

Making fraudulent damage or theft claims

Another car insurance scam that involves real damage to your vehicle is when someone destroys their own vehicle for the insurance money. 

For example, someone could set their car on fire intentionally and file a claim with their comprehensive coverage saying that the fire was an accident.

A similar version of this doesn’t involve damaging your vehicle at all. Instead of actually destroying their car, someone could intentionally abandon, destroy, or sell their vehicle and claim that it was stolen.

Since car insurance can cover stolen cars, these scammers plan to pocket the payout that would be meant to replace a vehicle that had been legitimately stolen.

Examples of soft car insurance fraud

Soft car insurance fraud is more common than hard fraud, but offenders may not even realize they’re committing fraud at all. While soft insurance fraud involves small-scale losses, it’s still a crime if you knowingly commit it. 

You can still face fines, community service, and jail time even if soft fraud is more likely to be a misdemeanor.

Misrepresenting personal information

Some of the most common car insurance scams that would fall under examples of soft fraud involve drivers who change or leave out details in order to get cheaper car insurance. These include:

  1. Not adding a young driver to an existing policy: On average, the cost of adding a new driver to an existing policy is $230 per month. That means it can be tempting not to list a teen on your policy once they’re allowed to drive. But not listing all drivers in your house on a policy will result in you not being covered in the event of a claim, even if it was accidental.

  2. Giving the wrong address to an insurance company: Auto insurance rates change by location, and even by ZIP code, So drivers may lie about their address in order to get lower insurance rates. But doing this can result in you not being covered in the event of a crash or damage, or having to pay extra if your misrepresentation is discovered. 

  3. Changing other personal information for a lower rate: There are a whole range of other things that drivers can lie about to avoid slightly more expensive insurance. This includes how often you drive, and whether you use your car part of the time for business or are a rideshare driver. These lies are still a form of insurance fraud, even if they seem inconsequential.

You might be paying for other drivers’ insurance fraud already — insurance companies use the losses that happen from the different types of fraud as one way to justify higher car insurance rates. According to the FBI, insurance fraud costs drivers between $400 and $700 per year in raised premiums. [3]

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Exaggerating the damage you claim after a crash

Lying about or exaggerating the details of an accident when making a claim can also be a form of car insurance fraud.

In these situations, even though there’s a real accident involved, drivers who commit fraud may misrepresent the information to get a bigger payout.

For example, let’s say that your car has had a dented front bumper for a while. When someone backs into you and damages the front of your car even more, it would be insurance fraud to exaggerate the value of your claim by passing off older damage as new to receive more money for the repairs.

Other examples of car insurance fraud

There are some other serious examples of car insurance fraud that involve someone like a tow-truck operator, mechanic, or another service provider (even an agent) who pretends to offer you a service as a way to get money from you or your insurance provider. These might include:

Car repair scams

There are a range of scams that involve repairs to your car that can also be a form of car insurance fraud. Untrustworthy repair shops may repair your car after a crash and bill your insurance company for extra (and often unnecessary) repairs. 

The shop may not even perform the repairs they bill your insurance company for, leaving your car unsafe.

Alternatively, repair shops may fix your car using cheap or inferior materials (sometimes even unsafe parts from salvaged cars) and pocket any extra insurance money in the process. 

The well-known fake airbag scam is an example of this. A repair shop will bill your insurance company for an airbag replacement while actually installing one that’s already been deployed.

Another form of insurance fraud committed by people who claim to be repairing your car are glass and windshield scams. In these situations, an individual or shop might offer to repair your windshield, then replace your windshield with a spare they already had on hand and bill your company for a brand new one.

Bandit tow trucks

Towing scams, like repair scams, target drivers who might have experienced legitimate crashes. After an accident, you could be approached by someone in a tow truck who then offers to take your car from the road to a shop for repairs.

While it might seem like a stroke of luck, the tow truck driver would take your car to a shop and charge you large amounts of money to get it back. In some versions of the scam, the tow truck driver would claim that your insurance company sent them.

The best course of action to get a tow after an accident is to go through your roadside assistance coverage Get receipts for any service before your vehicle is actually towed.

Phony insurance policies

One other example of an auto insurance scam occurs when someone posing to be an insurance agent sells you a fake car insurance policy. When you hand your money over to this person, they won’t give you a real policy in return.

If you’re scammed by someone selling fake policies, you’ll lose whatever money you paid them, but you’ll also be uninsured in case of an accident.

What is the punishment for auto insurance fraud?

The punishment for committing insurance fraud depends on the situation. If you tried to defraud an insurance company out of thousands or hundreds of thousands of dollars, you could be facing a felony charge and decades behind bars.

Most of the time, if your insurance company discovers that you left information off of your application, or that you lied about a past accident or ticket, you won’t be arrested. But you could have to pay back rates that you avoided or even be dropped from coverage.

If your insurance company finds out that you made a fraudulent claim, they will cancel your insurance policy and may let law enforcement know. Depending on the level of fraud and your state’s laws, you may face misdemeanor or felony fraud charges.

How to avoid car insurance fraud

The best way to avoid committing even minor car insurance fraud is by answering every question that your insurance provider asks honestly. That includes doing your best to give the right answers to every question you get when you’re shopping for insurance, like your mileage.

When you’re making a claim, be sure to give the most truthful account of the incident to your insurance company. Don’t fudge any details as a way to get more money out of a claim. It could also be helpful to write down your side of the accident to make sure your story stays the same.

You can avoid being the victim of car insurance fraud and scams by using only certified repair shops or places that your insurance company recommends. Get documentation (like receipts, invoices, and tracking numbers) at every step of the towing or repair process.

Try to avoid high-pressure situations where service providers try to create a sense of urgency. This is a common tactic for getting around most people’s sense of skepticism about exchanging money with someone they don’t know.

Finally, avoid giving insurance information to anyone that you don’t trust. Even if you don’t give them payment, the scammer could still make a claim in your name for damage that they never repaired.

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Frequently asked questions

How do I avoid car insurance fraud?

You can avoid committing car insurance fraud by being as honest as possible when you shop for insurance and when you make claims. Criminal insurance fraud takes intent, so don’t intentionally try to get more money out of a claim or reduce your insurance premiums.

What should I not tell an insurance adjuster?

You should tell your insurance adjuster the straightforward facts of your case. Don’t omit anything as a way to get a better rate (because that would be knowingly committing fraud). Stick to what happened and provide any documents your adjuster requests.

Should you contact your insurance company if you are not at fault?

Yes, whenever you’re in a car accident you should contact your insurance company. Your insurance company can help you through the claims process. You can also be sure that any damage that you received is documented. You may not have to file a claim, but you don’t want a future claim of yours denied because you failed to disclose past damage.


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Policygenius uses external sources, including government data, industry studies, and reputable news organizations to supplement proprietary marketplace data and internal expertise. Learn more about how we use and vet external sources as part of oureditorial standards.

  1. Coalition Against Insurance Fraud

    . "

    Fraud Stats

    ." Accessed October 20, 2022.

  2. Cornell Law

    . "

    Insurance Fraud Definition and Overview

    ." Accessed October 21, 2022.

  3. Federal Bureau of Investigations (FBI)

    . "

    Insurance Fraud Overview

    ." Accessed October 21, 2022.


Andrew Hurst is a senior editor and a licensed auto insurance expert at Policygenius. His work has also been featured in The New York Times, The Wall Street Journal, Forbes, USA Today, NPR, Mic, Insurance Business Magazine, ValuePenguin, and Property Casualty 360.

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