Unfortunately, scams and scam artists are all around us. These scammers have infiltrated just about every aspect of the financial world, including insurance. Whether discussing ghost brokers selling fake policies, various phishing schemes impersonating legitimate organizations, or other forms of fraud, where there's a need, there's a will by a bad actor.
Below we look at some specific forms of insurance fraud as they relate to long-term care, medicare supplement plans, marketplace consultations, life insurance, and disability income.
5 Common Insurance Scams & How to Avoid Them
The two best ways to avoid falling victim to insurance schemes is to (i) educate yourself on the most common types of scams and (ii) work with a reputable advisor to ensure you are getting what you pay for and without any smoke or mirrors.
#1 Long-term Care Insurance Scam
This form of insurance covers costs associated with long-term services and support, including nursing homes and in-home care. Fraud associated with this type of coverage includes fake policies, policy lapses, and unauthorized changes to the policy.
A fake policy is exactly what it sounds like. Victims are sold a non-existent insurance policy by a company never to be heard from again.
Lapsing often involves a deliberate attempt to create a non-payment of premiums so that the customer's policy is canceled, avoiding having to pay when coverage is needed.
Unauthorized changes can be extremely consequential to the policyholder as modifying coverage amounts to lower levels can leave the individual left without the funds needed to receive the care they need.
#2 Medicare Supplement Plan Scam
Medicare supplement plans, often referred to as Medigap, is an optional private addition to help cover expenses Medicare doesn't. This includes covering out-of-pocket costs, copayments, coinsurance, and deductibles not covered by Medicare Parts A and B. Scams revolve around false enrollments, identity theft, and plan switching and often impact elderly people disproportionately.
False enrollment scammers are known to encourage beneficiaries to obtain unneeded coverage during open enrollment.
Identity theft happens under the guise of offering a plan to an unsuspecting individual, only to have them hand over their personal information. This can be used to open fake credit accounts and can lead to financial ruin for some.
When a plan is switched, an agent moves an unknowing beneficiary to a different policy to earn a commission.
#3 Marketplace Consultant Scam
Consultants assist individuals in selecting health insurance via the private sector or government-run marketplaces under the Affordable Care Act. And though many people and businesses alike put their trust into these services, there are plenty of bad actors willing to take advantage of their clients in the form of fake marketplace websites, unlicensed agents, and so-called "limited benefit" plans.
Fake websites are common across a wide array of financial services, and insurance scammers use them to steal personal and payment information.
Unlicensed agents may not be taking advantage of their clientele, but there's good reason for why licensing exists and why an individual would seek out a licensed advisor.
A limited benefit plan scam deceives the beneficiary by allowing them to believe their plans meet certain requirements, but in reality offer minimal coverage.
#4 Life Insurance Scam
Life insurance is a tax-free payout to beneficiaries when a loved one dies. This money is often used to pay off expenses, cover funeral costs, and supplement lost income; which, for grieving family members, can be vital. Common scams involve policy churning, fake death claims, and premium diversion.
Churning is a way for unscrupulous agents to earn extra commission by regularly switching the holder's policy.
Fake death claims involve scammers making false identities and filing fraudulent death claims so that they, not the holder's beneficiaries, collect the payouts.
Premium diversion is when an agent collects premiums, but instead of forwarding them to the insurance provider, they pocket the money. This leads to policy cancellation and claims not being honored.
#5 Disabled Income Insurance Scam
Disability insurance works by providing monthly benefits to individuals who can't work because of an injury or illness. Scams revolving around disability income insurance include fake policies, fraudulent claims, and agent fraud.
As mentioned above, the fake policy scam works by promising exaggerated benefits to lure in the victim, but there's no policy and no payout upon request.
Fraudulent claims come from fraudsters looking to collect benefits they're not entitled to.
Agent fraud, as it relates to disability, is the process of falsifying medical conditions on application forms to gain approval for customers who are not eligible.
Key Insurance Scam Takeaways
Don't become a victim. Work with trusted agents and providers when obtaining insurance coverage services. Know that each type of insurance comes with its own set of dangers when it comes to scam artists.
Benefit & Financial Strategies knows that navigating insurance options can be complex, which is why we offer professional guidance to our clients. And though we, along with other marketplace consultants, offer valuable assistance, it's important that you do your due diligence when choosing the right company to work with.
To find out exactly how Benefit & Financial Strategies can serve you, please reach out to our team today for a consultation. We look forward to serving you and advising you on your specific insurance needs.