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Life insurance scams
How to spot red flags when shopping around for a policy.
Purchasing life insurance can get complicated in a hurry, and unsuspecting customers can find themselves lured into life insurance scams. Learn how to recognize legitimate policies and steer clear of common hustles.
Top life insurance scams
Avoid being sold something you don’t need by being aware of these common life insurance scams:
Buying more than you need
It’s tough to estimate how much coverage you’ll need — which is why some insurance agents may try to take advantage of you.
The larger the policy you purchase, the more money a commissioned agent stands to make. Be wary of pushy sales tactics that encourage you to purchase beyond your means.
Stranger-owned life insurance (STOLI)
Stranger-owned life insurance is a policy taken out by an individual to be sold to a third party with no insurable interest in the policyholder. Insurance interest is an essential component of insurance policies. Without it, the policy is considered both unethical and illegal.
Taking out a policy on your children
Purchasing a policy for your child might seem like a smart move, whether it be to protect the family in the event of the child’s death, or as a tax-deferred savings product.
But consider the following: It’s statistically unlikely that your child will die so early on in life. And if you’re looking for a long-term savings product, there are plenty on the market that won’t gouge you with hefty fees.
Convinced to buy an annuity you don’t need
When purchasing life insurance, you may be encouraged to buy an annuity — an investment product often sold in tandem with life insurance.
But while annuities are designed to offer a steady income stream in return for a lump sum payment, they’re accompanied by low interest rates, taxes and a heap of complicated fees.
Phishing emails asking for personal information
Typically, a phishing attack consists of a fraudulent request for personal information, often under the guise of a trusted provider. Phishing attacks can come in a variety of forms across a multitude of social media platforms.
You may be told you’re the unexpected beneficiary of a policy, or that something’s wrong with your life insurance. Scout for poor spelling, strange URLs and steer clear of any links you don’t recognize.
When in doubt, reach out to your provider by phone to clarify any requests for personal information.
Fake life insurance agents
A particularly malicious form of life insurance fraud comes in the form of fake life insurance agents. These individuals aren’t licensed insurance agents. They’re simply looking to pocket the cash of anyone they can sell a so-called “policy” to.
If you receive an unsolicited call from an unfamiliar agent or provider, think twice before you dish out any personal information. If you’re unsure, assess your insurance options in person with a provider you know and trust.
How to avoid a life insurance scam
Steer clear of any fraudulent life insurance pitfalls by:
- Research the company. Do your homework and look into the provider you’re interested in. Explore feedback from its customers through the Better Business Bureau and Trustpilot.
- Request your agent’s credentials. Most provinces require insurance agents to hold a license alongside mandatory participation in continuing education programs.
- Ask about commission. How much does your insurance agent stand to earn off the policy you purchase? Don’t be afraid to ask your agent if they work on commission.
- Learn about the policies. The more informed you are on the different types of life insurance policies, the better equipped you’ll be to spot potential fraud or upselling tactics.
- Read before you sign. Don’t let the jargon intimidate you — take your time and review your policy carefully before you sign it.
Compare other life insurance companies
Avoid life insurance fraud by learning to recognize the red flags. Compare your life insurance options with other providers to find the policy best suited to you and your loved ones.
Frequently asked questions
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