General insurance fraud costs Americans approximately $40 billion every year.  But despite what you see in movies and read in headlines, sensational life insurance schemes involving faked deaths and murders are rare.
More common types of life insurance fraud include purposefully misstating application information to get cheaper pricing or altering someone else’s policy without their approval.
In less serious cases of fraud, you might be hit with higher policy premiums, a policy denial, or cancellation of coverage. In more serious cases, life insurance fraud can be reported to a fraud bureau and brought to court.
The most common types of life insurance fraud
There are four common types of fraud in life insurance: application fraud, death fraud, forgery, and phony policy fraud.
1. Application fraud
If you knowingly provide incorrect information to your insurance company while applying for a policy, that’s application fraud, also called material misrepresentation or concealment.
“Any health issues will come out in a prescription check or MIB report, and insurers test for drug and nicotine use," says former Policygenius sales associate Hunt Harvey. “It can be tempting to keep information to yourself if you think it’ll increase your premiums, but not disclosing something will stretch out underwriting and make the insurer think you’re trying to hide something."
At best, the insurer will increase your final premiums if they find out you lied, and at worst, they will deny your insurance application. "If you’re honest with us, we can match you with a company that will give you competitive pricing, like non-smoker premiums for marijuana or cigar users,” says Harvey.
If you forget to mention a medical procedure you had a few years ago or mistakenly report a slightly lower weight on your application, that isn’t fraud. While the underwriter will correct your application and you may receive premiums higher than initially quoted, you’ll still get an offer since you didn’t intentionally mislead them.
2. Claims fraud
A Hollywood film favorite, claims fraud, commonly called death fraud, occurs when someone fakes their own death or the death of the loved one to collect a life insurance benefit.
Another type of claims fraud is when a beneficiary kills the policyholder to get a payout. This is extremely rare. In addition to murder charges, the guilty party would also be punished for attempting to profit from murder. If you’re killed by a beneficiary, the payout goes to your contingent beneficiary or your estate.
This type of life insurance fraud occurs when other parties — often a family member or spouse — access the policy and change its ownership or named beneficiaries. Only the policyowner is allowed to change the details of a policy, and someone would need to forge documents or fake their identity to alter a policy owned by someone else. You can have your claim denied and be prosecuted for forgery-based life insurance fraud.
4. Phony policy fraud
Scammers pretending to be insurance agents sometimes “sell” fake policies to unsuspecting customers and pocket the premiums. The fraudsters say they work for a recognizable, established brand to earn your trust, then request cash or direct payments for a policy.
Life insurance payments should always be made out directly to your actual insurance company. Brokers and agents can process the payments, and that may involve sharing payment information over the phone — another reason to make sure you’re working with a licensed agent — but the payee should always be the insurance company itself, never an individual.
How to avoid life insurance fraud
You can protect yourself from fraud schemes and scammers by only working with licensed insurance agents or brokerages. Ask your agent for their license number and check them out on your state’s licensing website. For example, all of Policygenius’ license numbers are listed on our website. You can check each state’s licensure through their Department of Insurance page.
Review your insurance policy regularly to ensure your beneficiaries and the ownership details are correct and make plans for the safe management of your policy as you age.
Report insurance fraud
If you encounter suspected fraud, contact the insurer that manages the policy with as many details as possible and share the information with a fraud bureau. Most states and the District of Columbia have an insurance fraud bureau that can investigate your report. If you’re unable to contact a local agency, you can make a report online with the National Insurance Crime Bureau or National Association of Insurance Commissioners.
What is the punishment for life insurance fraud?
The consequences of insurance fraud vary based on the type of fraud committed. If you commit application fraud, your application could be rejected or your policy could be canceled. You can be prosecuted for claims fraud, selling phony policies, and forgery.
Rejected applications or higher premiums
The most common result of life insurance application fraud is a rejected application, which can prevent you from getting insurance elsewhere.
Depending on the severity of the lie, you may be granted a policy, but it’ll come with much higher premiums as a penalty for lying and to reflect any health conditions or lifestyle risks you misrepresented.
Denied claims or canceled policies
If you lie about your health history, but the underwriters don’t discover the truth and offer you a policy, your lie could be discovered down the road. Life insurance policies have a two-year contestability period. If you die during contestability, the company can revisit your application to ensure that you were truthful.
If they find that you hid information, they'll cancel your policy and deny or reduce your beneficiary’s claim, leaving them with little to no financial support. Your beneficiary is refunded the premiums you paid, minus administrative fees. This can happen even if you die after the contestability period ends.
Deceiving an insurance company to collect funds is a crime in most states,  and a number of organizations are devoted to investigating insurance fraud. While you’re unlikely to face charges for lying on your application, other types of insurance fraud can go to court.
The punishments for life insurance fraud are severe, but as long as you are honest on your application and work with a licensed agent or broker, it’s unlikely you’ll find yourself involved in any insurance fraud investigations. If you suspect insurance fraud, report it to the appropriate agencies.
Frequently asked questions
What is considered life insurance fraud?
Lying on your application, selling fake policies, forgery or faking an identity to make changes to a policy you don ’t own, faking your death, and killing someone to get the death benefit are all types of life insurance fraud.
What is the punishment for life insurance fraud?
Concealing or misrepresenting information on your application can result in higher premiums. The insurer can also deny or cancel your policy, which may prevent you from getting coverage and leave your beneficiaries financially unprotected. People who commit forgery or claims fraud can be prosecuted.
How do I report life insurance fraud?
You can report life insurance fraud through your state's fraud bureau or an agency like the National Insurance Crime Bureau or National Association of Insurance Commissioners.