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Fraud is intentional deception for personal gain, and it’s estimated to cost the insurance industry tens of billions annually. According to the FBI, that means the average family pays up to $700 more in yearly premiums to offset the cost. What are the most common types of fraud? Here are five popular schemes.

Staging Crimes

From faking deaths to reporting phony break-ins, staging crimes are responsible for millions in insurance losses. The scheme works by reporting an event that didn’t happen or intentionally damaging personal property to file a claim. Homeowners break a window and report hard-to-track items as stolen, and then collect the amount for which they’re covered.

Exaggerating Claims

Exaggerating a legitimate claim such as overstating the value of items lost in a stolen car is an easy way to pad a pay-off. Claims for significant storm damage make insurance companies particularly vulnerable as they try to make the reimbursement process easier for the property owner by requesting less documentation and paying out without an in-person assessment by an adjuster.

Material Misrepresentation

Material misrepresentation is knowingly giving an insurance company false information on an application to either obtain a policy or get a more favorable rate. Understating age on a life insurance application or failing to disclose a history of speeding tickets to get cheap car insurance are top examples.

Shifting Costs

Shifting costs onto the insurance company to avoid paying a deductible is another common type of fraud that usually begins with a rightful claim. It works by asking repair contractors to overstate their bill by the amount of a deductible or co-payment. The policyholder than submits the inflated invoice for reimbursement, but pays the repair person only the original charge.


Only the owner of an insurance policy can change its terms, but that doesn’t stop scammers from requesting the necessary paperwork to do it and forging the owner’s name. They can then change the beneficiaries, create a claim and steal valuable benefits.

Insurance fraud is a crime that carries heavy penalties. Applications may be rejected, claims could be denied, and being convicted of serious fraud including forgery and staging crimes could result in prosecution and jail time. The easiest way to avoid painful consequences is, to be honest.