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There’s a consensus among crime and fraud-fighting bureaus that insurance fraud happens all the time, draining the bank accounts of both insurance companies and consumers. But fraud also includes situations less obvious than staging damage or forging a doctor’s diagnosis, and some people commit insurance fraud without thinking of it as a crime. Learn what’s considered insurance fraud and how you can stay above board.
Insurance fraud in the US costs the industry over $40 billion per year, not including medical fraud, according to the FBI Insurance Fraud Report. To make up for those extra claims payouts, insurance companies increase everyone’s premiums. This leads to an extra $400 to $700 charge to annual premiums for every family insured.
On top of that, states penalize insurance fraud as a crime — and the penalties can vary based on the type of fraud and the state’s laws.
Insurance fraud is the act of giving false information to an insurance company so that you can gain something you’re not entitled to. It’s also an insurance company withholding of a payout that the policyholder is entitled to based on the policy’s terms.
In most states, soft fraud involves someone overcharging or overestimating the damage that the insurance company should pay. This type of fraud is considered a misdemeanor and can lead to fines, a few months in jail or another minor to moderate penalty.
However, hard fraud involves someone causing intentional damage, staging an accident or organizing some other event to get an undeserved insurance payment. Most states consider hard fraud a major crime with steep penalties and several years in jail possible.
For example, California penalizes insurance fraud as a felony with up to $50,000 in fines and up to five years in state prison.
Nearly any situation intended to get undeserved reimbursement can be considered insurance fraud, including:
As mentioned above, fraud costs each family hundreds of dollars extra each year in raised premiums. To avoid fraud, take these active steps for prevention:
Some criminals start fake insurance companies to steal money, or insurance agents may defraud customers while working for reputable companies. You can avoid falling victim to insurance fraud by watching for red flags.
If you suspect fraud is happening, report it to your state’s insurance fraud bureau. How to report your case:
Insurance fraud comes in many forms and can involve small details, like avoiding relevant info on your application or padding property value. But reporting fraud can go a long way toward lowering future insurance costs.
Since businesses can commit fraud too, do your research to find legitimate insurance companies before buying a policy.
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