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Life insurance scams

How to spot red flags when shopping around for a policy.

While they’re rare, the life insurance world is susceptible to unscrupulous agents and practices — just like any industry. When you’re shopping for life insurance, it’s important to learn how to spot scams and red flags to be sure you’re purchasing a legitimate policy. Find out the most common scams — and what to do if you fall victim to one.

The most common life insurance scams

To prevent buying an unsuitable or even illegal policy, be aware of these life insurance scams.

Overselling life insurance coverage

Life insurance agents and brokers usually work on commission, which means they have an incentive to sell you a more expensive policy. In other words, the larger the policy you purchase, the more money a commissioned agent stands to make. While this isn’t a scam in itself, it’s a shady practice because it means consumers end up buying more coverage than they need — and paying higher premiums.

Be wary of pushy sales tactics that encourage you to purchase beyond your means, and agents who contact you incessantly — even if you’ve said you’re not interested in their services.

Before you start the purchasing process, estimate how much coverage you’ll need so there’s less chance of life insurance agents taking advantage of you.

Agents lying about your net worth

When insurers are determining whether to issue you a policy, they look at a range of factors — including your net worth. Some unscrupulous agents may fraudulently inflate your net worth in your application so that you qualify for a larger policy. This results in higher premiums for you, and a bigger commission for them. In many cases, these policies can also prove to be unaffordable, meaning you may lose your coverage.

To ensure this doesn’t happen to you, submit your application yourself, or ask for a copy and check it for inaccuracies.

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. This strategy is most common among seniors, who may take out a life insurance policy on themselves with the intent of transferring ownership to an investor in exchange for a cash payment. This is unethical and illegal in many states, so be wary if you’re approached about an arrangement like this.

To legitimately purchase a life insurance policy on someone else, you need to prove an “insurable interest,” which means you’d suffer financially if they died. Furthermore, you need that person’s consent — you cannot buy life insurance for another person without their permission.

Annuities for retirees

When purchasing life insurance, you may be encouraged to buy an annuity — an investment product often sold in tandem with life insurance. Annuities are designed to offer a steady income stream in return for a lump sum payment, and they can often support you financially during retirement.

However, annuities come with fine print. Many annuities won’t pay out for 10 to 15 years, and charge hefty years if you withdraw your funds early. They’re also accompanied by low interest rates and taxes, making them a complicated product.

For these reasons, annuities are best for people who are still in the workforce. If your agent is pushing an annuity — a retirement financial product — on you when you’ve already retired, ask them how much you’ll be paid before committing.


Many agents realize that policyholders don’t monitor their policies, and instead simply pay their premiums when they’re due. Some agents may take advantage of this by offering to replace your existing policy or annuity with a new one of equal or greater value. This isn’t a scam on its own, but when agents mislead customers into switching to a less valuable policy, that’s illegal.

“Churning” is most common with annuities, whereby an agent will promise you a cash bonus to replace your annuity. This will then reset the access to your annuity for another 10 to 15 years, and you’ll be charged hefty penalties for early withdrawal. However, the agent will walk away with a second commission.

Policy switching

Another scam is when agents or brokers ask you if you want to lower your premium, then switch your term policy to a permanent one without your knowledge. Permanent policies have a cash component, and agents earn a higher commission those.

To avoid this scam, learn the difference between term and permanent life insurance so you can purchase the policy that best suits your needs — and don’t let anyone convince you to switch your policy on your behalf.

Phishing emails asking for personal information

Typically, a phishing scam consists of a fraudulent request for personal information, often under the guise of a trusted provider. You’ll typically receive an email asking you to reply with sensitive personal or financial details, such as your Social Security Number.

You may be told you’re the unexpected beneficiary of a policy, or that the insurer needs to confirm your credit card number to process a premium payment. Scout for poor spelling, strange URLs and steer clear of any links you don’t recognize. When in doubt, reach out to your insurer by phone to clarify any bids 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 “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

There are steps you can take to protect yourself and your family, and learn to distinguish between “good” and “bad” agents. These include:

  • 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 states 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 upsell tactics.
  • Read before you sign. Don’t let the jargon intimidate you — take your time and review your policy carefully before you sign it.
  • Avoid giving out personal information. Don’t provide any sensitive and financial information unless you’re absolutely certain about the request, and call your insurer if you receive a suspicious email.
  • Don’t hesitate to ask questions. Your agent or insurer should be completely transparent with you, and happy to clarify any details.
  • Rely on the cancellation period. Most life insurance policies come with a “free look” period of around 10 days, whereby you’re free to cancel your coverage for any reason and receive a full refund of premiums paid. During this trial period, double-check all your policy documents to make sure everything is accurate and legitimate. If you’re uncomfortable with any part of your coverage, cancel it.

How do I know if a life insurance company is legitimate?

Standard & Poor’s, A.M. Best, and the Better Business Bureau (BBB) are reputable reporting agencies that you can rely on to research the insurer you’re interested in. Also contact your state’s insurance department to find out if the license for a particular provider or agent is in good standing.

What to do if you fall victim to a life insurance scam

If you realize you’ve fallen victim to a life insurance scam, it’s important to take action immediately. The best course of action to take depends on the scam, but these tips may help:

  • Check the cancellation policy. If you’re outside the free look period, you should still be able to cancel your coverage — though you probably won’t be reimbursed for any premiums paid. If you’ve purchased a policy through a fraudulent agent or company, the process may be more difficult, and you may still be charged premiums despite trying to cancel. In this case, you’ll want to file a fraud report.
  • Report the scammer. For life insurance fraud, your first port of call is your state’s Department of insurance. Explain your situation and submit any evidence, and they’ll investigate the claim. Chances are, the agent’s license may be revoked, or you’ll be directed to the insurance fraud bureau. You can also contact the National Institute of Crime Bureau on its website or by phone to report the incident.

Bottom line

Unfortunately, there are scammers and cybercriminals who engage in fraudulent life insurance practices. The best way to avoid falling victim to a scam is by learning about your life insurance options, researching agents and insurers, and reporting any suspicious behavior.

Compare your life insurance options to find the policy best suited to you and your loved ones.

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