Misleading a life insurance company might mean your loved ones never see the money you intended for them.
Updated May 3, 2024 · 2 min read Written by Katia Iervasi Assistant Assigning Editor Katia Iervasi
Assistant Assigning Editor | Life insurance, disability insurance, health care
Katia Iervasi is an assistant assigning editor at NerdWallet. An insurance authority, she previously spent over six years covering insurance topics as a writer, where she loved untangling complicated topics and answering readers’ burning money questions. She holds a Bachelor of Arts in communication and has studied writing, fact-checking and editing with Poynter. Her writing and analysis has been featured in The Washington Post, Forbes, Yahoo, Entrepreneur, Best Company and FT Advisor. Originally from Sydney, Australia, Katia currently lives in New York City.
Reviewed by Tony Steuer Life insurance expert Tony Steuer
Life insurance expert | Life Insurance
Tony Steuer is a financial wellness advocate, podcaster and speaker, and the author of "Questions and Answers on Life Insurance." His advice has been featured in media outlets including The New York Times, The Washington Post, Fast Company, Forbes and CNBC. He has a bachelor of science degree in finance from California State University and holds the following designations: Chartered Life Underwriter (CLU), Life and Disability Insurance Analyst (LA) and Certified Personal and Family Finance Educator (CPFFE).
At NerdWallet, our content goes through a rigorous editorial review process. We have such confidence in our accurate and useful content that we let outside experts inspect our work.
Assigning Editor Lisa GreenLisa Green leads the life insurance team and oversees insurance-focused data journalism at NerdWallet. A professional journalist since high school, she was an insurance writer at NerdWallet before becoming an assigning editor. Previously, Lisa spent more than 20 years as an editor at The Tennessean in Nashville, where she led business and consumer coverage for several years. At The Tennessean, she was part of a 2011 Pulitzer Prize finalist team for coverage of devastating floods in Middle Tennessee. Her work has also won awards from the Society for Advancing Business Editing and Writing, Investigative Reporters and Editors, and the Society of Professional Journalists. Lisa is an alumna of the Wharton Seminars for Business Journalists at the University of Pennsylvania. She has also studied data journalism with the National Institute for Computer-Assisted Reporting, business editing with the American Press Institute and writing, editing and news research with the Poynter Institute. In addition to her work at NerdWallet, Lisa is a real estate investor and has taught a seminar on how to earn college scholarships. She is based in Nashville.
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Fraud is a persistent problem for the insurance industry, and it’s one we all pay for. The Coalition Against Insurance Fraud estimates it costs insurers $308.6 billion a year industrywide, leaving customers to recoup the losses with higher rates [0]
National Association of Insurance Commissioners . Insurance Fraud. Accessed May 3, 2024.People commit life insurance fraud to the tune of $74.7 billion a year, according to the National Association of Insurance Commissioners — often to get a lower premium or receive money they’re not entitled to [0]
National Association of Insurance Commissioners . Insurance Fraud. Accessed May 3, 2024.There are a few types of life insurance fraud, and in some cases, applicants and policyholders don’t know they’re guilty of committing it.
When you fill out a life insurance application , you’ll answer questions about your health, smoking status, lifestyle, hobbies and income. The insurer uses this information to calculate how “risky” you are to cover and to set your premium, which is the amount of money you’ll pay to keep your coverage active.
The goal is to be as transparent as possible. If you knowingly lie or omit information on your application, that’s a form of fraud known as “material misrepresentation.” Now, forgetting your uncle had high cholesterol doesn’t necessarily qualify as fraud. But if you say you’ve never smoked cigarettes and yet you have respiratory issues due to smoking, that does.
The insurer will likely find out, too. During the underwriting process, the best life insurance companies pull third-party records to ensure what you’re saying is true. These may include:
Prescription medication records from the past five to seven years. Driving record listing major traffic violations.Report from MIB , formerly known as the Medical Information Bureau, which contains information from past life insurance applications.
Credit history to check for bankruptcies.Some policies also require a life insurance medical exam , which will reveal your weight, blood pressure, nicotine use and other health issues.
This doesn’t just happen in Hollywood: There have been cases of people faking their own death or faking the death of a loved one to collect the life insurance payout .
Another type of claims fraud is when a life insurance beneficiary murders a policyholder to get the payout. If life insurance is purchased shortly before the policyholder dies, investigators might look into whether the beneficiary sought to profit from the death, according to the National Insurance Crime Bureau, or NICB.
Forgery falls under the umbrella of identity theft or account takeover fraud, says Russell Anderson, certified fraud examiner and head of financial crimes services for LIMRA, a life insurance trade group.
“[Account takeover fraud] is where one individual impersonates another individual with the intention of accessing their [life insurance policies] to steal some of their data, but more than likely not to access and steal the cash value in those accounts,” Anderson says.
Family members, friends, caregivers and people who have a relationship with the policyholder tend to be the main culprits, according to LIMRA.
There have also been cases where a third party pretends to be the policyholder to change the beneficiaries or policy ownership without consent. For instance, in 2017, Pennsylvania regulators fined a funeral director who was convicted of forging a client’s signature on a document naming his business as the beneficiary of her policy.
Older adults and vulnerable adults are key targets. In a 2024 survey, 51% of LIMRA’s member companies reported an increase in account takeover fraud from related parties, like family members, from 2022 to 2023. In the same survey, around 47% of insurers said they saw a rise in third-party account takeover fraud by unknown fraudsters.
The repercussions of committing life insurance fraud vary based on the severity of the case, with criminal charges at the higher end of the spectrum.
Insurers can reject your application or raise your rate if they discover you lied on your application.
If you die during the contestability period , which is within two years of the policy going into effect, insurers can delay the claim while they investigate. And they have the right to deny or reduce the payout to your beneficiaries if you left out important details about your health — even if you died for unrelated reasons.
If you believe you’re a victim of fraud, contact the National Insurance Crime Bureau at 800-TEL-NICB, or file a report at NICB.org.
Most states also have an insurance fraud bureau, and Anderson recommends contacting your bank if you suspect your identity has been stolen.
To make sure you’re not being fraudulent, whether accidentally or otherwise:
Be truthful in your life insurance application. This is the best way to guarantee your loved ones get the payout.
Work with a licensed agent or broker. These professionals can help you navigate the application process.
Don't let anyone else sign up for your insurer’s online portal on your behalf. Many insurers allow policyholders to manage their coverage online. Opting in to security features like multifactor authentication is important, Anderson says.
Check your beneficiaries. Update them if you’ve gone through a life change, like getting married. About the authorYou’re following Katia Iervasi
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Katia Iervasi is an assistant assigning editor and spokesperson at NerdWallet. An insurance authority, she previously spent over six years covering insurance topics as a writer, where she loved untangling complicated topics and answering readers’ burning money questions. She holds a Bachelor of Arts in communication and has studied writing, fact-checking and editing with Poynter. Her writing and analysis has been featured in The Washington Post, Forbes, Yahoo, Entrepreneur, Best Company and FT Advisor. Originally from Sydney, Australia, Katia currently lives in New York City. See full bio.
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