Common Life Insurance Scams and How to Avoid Them

Contribution by 1 expert

Updated: July 18, 2024

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A good life insurance policy ensures that your loved ones will be well protected in the event of your death. However, the process of shopping for an adequate policy at an affordable price can be stressful, especially in a market often targeted by life insurance scams. In fact, according to the Coalition Against Insurance Fraud (CAIF), insurance fraud is one of the country's biggest crimes, costing consumers at least $80 billion each year.

You can arm yourself against con artists and unscrupulous agents by learning about various life insurance scams. If you're shopping for a policy, this guide will help you identify the most common forms of life insurance fraud. We'll also give tips on how to protect yourself and explain what to do if you become a victim of fraud.

Types of Life Insurance Scams

Many different types of life insurance scams and dubious sales tactics have emerged over the years, some affecting certain groups more than others. Here are a few of the most common types.

Overselling a Policy

Life insurance agents usually work on commission, which means that they have an incentive to sell you a higher-priced policy. While upselling your policy isn't necessarily a scam, it does lead to consumers paying more than they should.

"This is the insurance industry's dirty little secret — they are not required to disclose commissions on any products that they sell to consumers," says Scott Page, retirement expert and author of It's Never Too Late: Getting Older, Wiser, and Worry Free in Our Golden Years. "If a consumer does not ask, they don't have to tell."

One thing some of these agents may try to add is a double-indemnity rider, which promises to pay your survivors double if you die in an accident. After a certain age, accidental deaths are less likely than an illness-related death. This means you'll be paying extra for all of those years you manage to avoid dying accidentally. Another extra to avoid is the waiver of premium rider, which promises to continue your coverage if you're suddenly disabled. This is another thing that is statistically unlikely to happen, especially during a policyholder's working years. In both instances, the customer gambles on something that is unlikely to happen while the life insurance agent pockets a higher commission.

Insurance Agent Fraud

As the Coalition Against Insurance Fraud notes, "The vast majority of insurance agents and companies are ethical, honest and trustworthy, but crooked agents and bogus insurers do exist."

In rare cases, insurance agents directly steal from clients, setting money aside from a policy for themselves. One way they do this is by quoting a premium to a customer for a policy they never set up. Unless the victim calls to check up on the policy, the fact that a policy was never put in place likely won't be discovered until years later when a loved one files a claim after the falsely insured person dies.

In some cases, the insurer quotes a premium that is higher than the actual cost and keeps the difference. Although victims of any age can fall prey to insurance agent fraud, some agents target the elderly based on the assumption they'll be more trusting. These unsavory insurance agents count on customers who don't raise questions. In some cases, these agents may even claim to be connected to a reputable agency, which helps them earn the trust of customers.


Once a customer has signed with an insurance agent, that agent has all the information necessary to adjust features or draft new policies under that person's name. These agents realize that many customers don't regularly revisit their policies and merely pay the premiums when they're due.

Some agents approach customers with the offer to replace an existing policy with a new one of equal or greater value. The policy may be with the same insurance company or a new insurer. Still, in both cases, the actual value of the life insurance is less than that of the original policy. An agent who suggests a customer switch to a more valuable policy for the same or lesser premium is perfectly within his or her legal rights to do so as long as the change benefits the insured.

However, the practice is illegal when an agent misleads a customer into switching to a less valuable policy. When replacing a policy, an honest agent will provide documentation that clearly shows the benefits of the new policy and then have the customer agree to the changes. Consumers should be suspicious when an agent pushes changes without supporting documentation or detailed information.

Identity Theft Scams

Almost half of all data breaches relate to some form of stolen identity, and life insurance is one of many ways swindlers gather personal information on their victims and use that information to open accounts and make purchases. When identity theft scams involve life insurance, the customer hands over crucial information that can then be used to open new accounts and purchase items using the victim's contact information.

A victim of a life insurance scam will receive some type of communication from a person claiming to work for their life insurance company. The person may use one of the following excuses:

  • A relative has passed away and left money to the consumer. The criminal will then ask for financial account information or a social security number to expedite payment.
  • There's a problem with the customer's insurance policy, and the caller just needs some critical information to fix it.
  • The customer's life insurance payment is overdue. If the customer provides a credit or debit card number, the caller can process the payment.

In the days immediately following this communication, the victim may have no idea his or her identity has been stolen. The criminal may merely use the credit card number to make purchases. If the information is used to open new bank accounts or credit cards or to purchase large items like a car, the consumer may find that corrective action is much more complicated. A stolen identity can severely damage your credit, leaving you responsible for remedying the situation with the nation's various credit bureaus.

How to Prevent Life Insurance Scams

It can sometimes be difficult to distinguish between a good and bad agent, but there are steps you can take to shield yourself from life insurance scams. Here are a few tips to help you as you look for the best life insurance policy to protect your loved ones.

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    Consider an Independent Broker

    Independent brokers have become more popular, especially since the internet has made it easy to sign up and get recommendations. An independent broker shops multiple insurance providers to provide the best price to meet your needs.

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    Research the Agent

    The internet can help you learn about an agent before signing any documents. One resource to check is the Department of Insurance website specific to the state the agent practices in. Often, this will help quickly identify any past problems. Make sure the agent has an active license with no reported sanctions, preferably over many years.

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    Research the Agency

    The mere fact that an agent is with a well-known agency doesn't guarantee reliability. However, you can verify an agency's reputability by reading reviews and learning more about it.

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    Contact the Agency

    If you're working directly with an agent, don't hesitate to contact that agent's insurance company to verify what you're hearing. If it's a respected agency and they can vouch for the agent's reputability, you can move forward with more confidence.

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    Ask for Referrals

    Friends and family can be invaluable in identifying a trustworthy agent. They will have already had personal experience with an agent and be able to verify that it has been a good one so far.

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    Shop Around

    Fortunately, life insurance is a buyer's market, and there's no shortage of agents who are willing to give a quote. One of the best ways to get a feel for the many options is to price and compare multiple life insurance policies. You can then compare what you're being offered and easily identify any scams. If someone is promising something significantly more for the same price, if not lower than other insurers, that may be a sign that something is amiss.

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    Read the Fine Print

    Before signing with an insurer, read over all documentation carefully and identify any terms that might cause problems in the future. Ensure your policy documents detail the coverage you're getting for the premiums you're paying.

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    Take Advantage of Cancellation Periods

    Once your insurance policy is in place, you'll still need to be vigilant, especially if your agent suddenly suggests making a major change to your policy. If your agent recommends something that will increase what you're paying each year, get a second opinion from a respected life insurance agent.

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    Question Changes

    Once your insurance policy is in place, you'll still need to be vigilant, especially if your agent suddenly suggests making a major change to your policy. If your agent is recommending something that will increase what you're paying each year, get a second opinion from a respected life insurance agent.

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    Be Careful With Your Information

    If you receive a call, email or other communication about your policy, contact your agent or life insurance agency to discuss it. Do not give out payment information, contact details or your social security number unless you're 100% certain you're speaking to a trusted representative from a service you use.

How to Take Action if You Become a Victim

If you realize you've likely fallen prey to a life insurance scam, it's important to take action. First, carefully review the terms of any agreements you've signed and determine if you can exit the agreement without penalty. If you're still in the free look period of your policy, you can cancel and receive a full refund of any premiums you've paid. Note that this only applies if you've signed with a legitimate company.

If you're beyond the free look period, check into the cancellation policy. You likely won't receive a refund of the premiums you've paid, but you should be able to exit without penalty. To avoid a coverage interruption, you may want to line up life insurance with another carrier before canceling.

If you have signed with a fraudulent firm or agent, the cancellation process may be much more complicated. A fraudulent company may not be willing to cancel a policy based on one phone call or written notice. You may get promises to cancel only to find you're charged again the next time your premiums are due.

For life insurance fraud, you should contact your state's Department of Insurance and report the agent and/or agency. If the agent has a license, that license may be revoked due to your report, depending on the severity of the offense. Your state may also point you to the insurance fraud bureau, where you can file a report and possibly keep the agent from scamming anyone else.

FAQ About Life Insurance Scams

Explore common inquiries about life insurance scams to better understand how to recognize fraudulent practices and protect your financial interests.

What is life insurance fraud?
Is life insurance a scam?
Is term life insurance a scam?
Is whole life insurance a scam?
Is life insurance a pyramid scheme?
Is selling life insurance a scam?
How do you check if a life insurance company is legitimate?

Expert Advice on How to Protect Yourself from Life Insurance Scams

  1. What is the most common type of insurance fraud you've seen in your years in the industry?
  2. What does a life insurance scammer look for in a victim?
  3. Do you have any advice for specific demographics?
Brad Cummins
Brad CumminsFounder


If you believe you've been a victim of life insurance fraud, here are a few resources that can help you:

About Stephanie Faris

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Stephanie Faris is a freelance writer whose work has appeared on the Intuit Small Business Blog, Ecommerce Insiders, and many other business sites. She is also a fiction author, including 30 Days of No Gossip, 25 Roses, and the upcoming Piper Morgan series (all from Simon & Schuster).