What is Life Insurance Fraud?

Tricia Christensen
Tricia Christensen

The typical definition of fraud is that it is intentional deception that will harm someone else, physically, financially, or in other ways. Life insurance fraud is very specific. It refers to acts of intentional deception on the part of those applying for or those selling life insurance. There are many different ways this type of fraud manifests.

Doctors who certify the "health" of a severely ill person may be complicit in life insurance fraud.
Doctors who certify the "health" of a severely ill person may be complicit in life insurance fraud.

Some life insurance fraud is committed by people buying insurance or who already possess it. The most common kind is making deliberate misstatements on applications for insurance. Any type of health information on a policy must be accurate, including a person’s age. Smokers have to ‘fess up to their behavior, and if people have medical conditions that may raise the cost of insurance, they still must claim them if required. Though life insurance will be more expensive if a person has medical conditions, a policy may be worthless if a person lies on an application. This voids any contract because it is fraudulent, and might leave people’s survivors with no money to collect if fraud is proven.

Some insurance agents falsify paperwork and take out policies on third parties to benefit themselves.
Some insurance agents falsify paperwork and take out policies on third parties to benefit themselves.

Life insurance fraud can involve some fairly elaborate schemes. People have faked death so that family members can claim policies. Others create a false identity that they can then “kill” for the money. As unsavory as these crimes are, they are at least not physically harming an actual person. Unfortunately, there have been many instances where someone has killed someone else in order to collect on life insurance. This is not only fraudulent but typically considered as first-degree murder.

One type of life insurance purchase that may be fraudulent or illegal at times occurs when companies purchase life insurance on employees, sometimes called dead peasant’s insurance. This is not illegal provided employees grant permission for the company to insure them and collect funds if they die. When an employee does not consent to this, it may be viewed as a fraudulent act.

A few doctors can get involved in life insurance fraud by acting as medical examiners that certify the health of people applying. With the person seeking health insurance, they deliberately falsify information on medical exams. This may occur for people expected to live a long time despite medical conditions, or it may be collusion with a disreputable agent in what is called viatical fraud.

In viatical fraud, agents recruit people with terminal illnesses to buy numerous policies, all of which will have an annuity. The person gets some money to make it to the end of his or her life, but the majority of the funds will end up in the pockets of third-party investors after the person’s death. Doctors may be involved to certify the “health” of the severely ill person, who also lies about medical condition, and the broker or salesmen is clearly part of the scheme too.

Along with viatical life insurance fraud, other types of fraudulent activities may be practiced by agents selling insurance. Sometimes agents ask people to sign blank forms or offer people new deals on insurance that drain their present insurance to pay for the new policy. These can be fraudulent acts, and people looking to purchase more insurance should be aware of them.

Medical conditions that occur as a result of smoking may raise the cost of a person's insurance.
Medical conditions that occur as a result of smoking may raise the cost of a person's insurance.
Tricia Christensen
Tricia Christensen

Tricia has a Literature degree from Sonoma State University and has been a frequent wiseGEEK contributor for many years. She is especially passionate about reading and writing, although her other interests include medicine, art, film, history, politics, ethics, and religion. Tricia lives in Northern California and is currently working on her first novel.

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Discussion Comments


@Post 12: Interesting question. If the policy is still within the two year contestable period, there would have had to be an insurable interest in the life of the insured for a policy to have been taken out and issued by the underwriting department of a US insurance carrier. From your post, it does not look like there is enough information provided to make that determination, but it looks like there may not be.

If you know the insurance carrier, contacting their policy owner service department or Special Investigations Unit would be a good idea. Most companies are very good at following up on this type of situation. However, if the policy is past the two year contestable period, there might not be much you can do outside of bringing your concerns to the authorities.


@Post 6: If the mother was the beneficiary, I would consider it a poor choice by the mother. When she collects the benefits, she is not obligated to do anything special with them.


What if my uncle lies about having an insurance policy on my dad, but my dad dies. Then, my uncle asks for money to help cover funeral expenses from all the siblings. We find out the day before the funeral about an insurance policy, but my uncle takes all of our money, cashes the checks and is still asking for money. Is this fraud?


My high school boyfriend was murdered in January 1985 in his Wisconsin apartment by my biological father who born and raised in that town. I am also a survivor of Shaken Baby Syndrome from my biological father in 1960. My injuries included 'lesions of the mouth' which were misdiagnosed as 'malignant tumors', a broken jaw, skull fractures and subdural hematoma. I spent the entire month of March 1960 in the Madison University Hospital hanging on for dear life.

I was not removed from the house and I went on to meet a young man whom I loved dearly. In 1976, I became pregnant with his son. Michael tried to marry me but I was not allowed to do so. I was led to believe that I would be able to have my child and return to finish my junior and senior year of high school, but when the fall semester started, I was not allowed to attend. One night, my mother entered the room and told me to get up, get dressed and get into the car. She did not tell me where she was taking me but drove me to get an illegal saline abortion when I was more than six and a half months pregnant. It was a boy. The procedure was outlawed by the US Supreme Court the year before I was forced to have it.

Within weeks Michael, the father of my son, got into an auto accident and went into a coma. He came out of the coma, but was paralyzed on one side of his body and was never the same. He had to learn all of his abilities all over again. He managed to live independently, but nine years later my biological father left the house, and went to Michael's apartment and murdered him.

Four years later, my stepmother, who married an upper class-man at the same high school where Michael and I met, dated and conceived our son, went ahead and purposely planned and delivered a child born C-section on the very day Michael was murdered. She was not much older than me and purposely had the child on the very day my biological father murdered Michael.

Michael's mother stood to gain a lot – millions -- upon Michael's death, and was eager to wrap up the investigation and move out of state, which she did in the fall of 1986. She received millions of dollars because she named herself “co-plaintiff”' in the personal injury lawsuit from the auto accident Michael had just weeks after my illegal abortion.

My biological father's mother only had one sibling, who was married to a county deputy. He, the deputy, did everything he could to cover for my biological father's crimes, including murder, in the county. My paternal grandmother also covered for his crimes. My father's only uncle was through marriage. He had no other nephews, so he also went to extremes to cover for his only nephew through marriage. My biological father was/is the only child and the only grandchild and comes from lots of money. He got his way all of the time and it did not matter if what he got away with was legal or not.

I have tried several times to get Michael's mother to help me in seeking justice for Michael's murder, but she continues to ignore me. I realize she stood to gain lots of money after Michael's death and the speedy wrapping up of the bogus investigation.

She lied and said that there was a “chain on the door, but I went through the apartment for the first time in my life in 2011 and there was no indication that there had ever been a chain on the door. I took pictures. There are numerous other inconsistencies that go up as far as the county coroner who is also covering for the murder. I also think that he, the coroner, had had an intimate affair with Michael's mother at one time prior to his having been a coroner when he was a shoe salesman because of the conversation that I had with him in 2006 after he contacted me at my place of employment and told me that I could meet with him and go over Michael's medical report at his office on the following Sunday. I did not realize when I agreed to meet the coroner at his office on the following Sunday that it was Father's Day. I didn't realize this until after I hung up the phone, but had I realized this I would have not agreed to have met him on day.

I believe this day was picked out just to make a fool of me and say something to the effect of, “Yeah, we know your father did it but we don't care.” It's sort of like the good old boys club mentality in this county, which has been perpetuated by my father's only uncle.

My child was taken from me by an illegal abortion. Nine years later, my biological father murdered the father of my son and four years after that, my stepmother went on to purposely plan her pregnancy and deliver a child around the murder date and have the child via c-section on the very day my biological father murdered Michael.

I realize that cold cases are difficult, but I've archived numerous details that I've found and even took photos of the inside of Michael's apartment when I toured it, since it's under new ownership. There were details of the apartment, or the crime scene, where Michael was murdered that I've detailed in the hopes of justice someday.

I am very sure the suspicion of foul play concerning Michael's death was suspected by his mother but because of the fact that she had just lost her second husband the year before Michael's murder and the fact that she had taken care of Michael after his auto accident, I'm she sure felt entitled to the millions Michael received after his accident.

I cannot understand how she could have named herself as a co-plaintiff in the accident in the first place, since Michael was over of legal age at the time of the accident. I met him when I was 15 and he was 17. Furthermore, she was a benefits coordinator with Aetna and I'm sure took out a huge policy on Michael after his accident in 1976. This is fraud.


Can a person collect life insurance if she is slowly killing your son by taking him to her doctor and getting the doctor to prescribe pain medicine to keep him working?

His back is so messed up but he keeps working to pay off the house, cars and bills. She has a $250,000 life insurance policy out on him. Can she collect if he dies? In 1988 she killed a man and plead insanity and the charges were dismissed.


Please answer: A father dies by natural causes and had a life insurance policy. The death benefit was equally divided among four children, one of whom was named as executor of the estate. This person did not tell one of the children about the insurance policy and only informed family members that there was a couple of hundred dollars that was found and he needed a signature so that this "couple of hundred dollars" could be transferred to the parents' account, never mentioning any type of insurance benefit -- at all. Would this be insurance fraud?

If the money was then transferred to that child/executor's account, would that be an additional violation of law?


An individual has been involved in a high risk activity like mountain climbing will not be an insurable risk and is willing to accept the risk and instruct the family no claim is to be filed on policy in that case. Would the insurance company deny coverage if something else caused the death?


@anon183432: Well, the mother must have had a logical explanation to family members about what happened. What did she say? Moreover, she could not collect benefits from insurance company without telling them what happened. They usually require medical records, and in some cases may proceed with an investigation on the "cause of death" subject.

This all makes it unlikely that someone (mother) did collect money without telling anyone about what really happened.


Daughter commits suicide (pills) leaves note on computer.

Mother doesn't tell anyone that she committed suicide, except me. Mother collects on life insurance.

Anyone else think this is wrong? what are penalties for this?

Father and relatives don't even know what really happened.


@anon152875: It's despicable and irresponsible, but, unfortunately, not fraud. An insurance payout is just that. It's money paid to the beneficiary (the mother, in this case). The money, while usually used for burial expenses and to pay debts, or do other useful things, may be used for anything. There are no conditions which govern how insurance money can be spent -- only on how it can be claimed.


Is this fraud? Please answer. A mother's child dies in a car accident, she has a 50,000 dollar life insurance on the child but instead of using the money for the funeral, she uses the money for her own personal enjoyment, leaving the father of the child stuck with the funeral costs. Is this fraud or just a poor choice by the mother?


SurfNturf-I know that car insurance fraud involves the disappearance of a car when the person somehow is unable to pay any longer.

Having the car disappear almost absolves the criminal from the debt until some remnants of the car are found and the insurance investigation case is put together against them.

This has to be the reason why South Florida has among the highest auto insurance rates in the country. We all pay when people commit these crimes because all of our policies go up so that the insurance company can absorb the costs.


Cupcake15-I know that in South Florida, car insurance fraud is rampant and among the highest incidents in the country.

Sometimes if the damages are minor, an insurance company will just settle and cut a check rather than do an extensive investigation.

I was involved in a minor car accident that was my fault, but the person that I hit had nothing wrong with him and there was no damage to his van. He received $2,500 from the insurance company for medical bills.

It was incredible; there was nothing wrong with this guy. I could not believe it.


Cupcake15-I heard about a case on TV where a prominent doctor gave his wife a pill before she drove her car and then died in a car accident.

The doctor was later convicted of the crime, but his motive was obviously the insurance money, because they had a hefty policy on the wife.


Mutsy- Many cases of insurance fraud investigators include viatical settlements and suspicious deaths.

Viatical settlements involve the purchase of a life insurance policy from an investor for a terminally ill person. The terminally ill person gets an upfront payment and the investor then capitalizes on the payoff when the terminally ill person dies.

It is really a very sick and morbid fraud scheme that is on the rise. The other common cases involve suspicious deaths. In these cases, a family member will take out a policy on another family member and within several weeks of that new policy becoming active the person suddenly dies leaving the other family member to collect on the policy.

Often these cases involve poisonings or mysterious disappearances.


Most of the life insurance fraud statistics according to the IRS show that 90% of cases that go to trial result in incarceration.

Insurance fraud investigators are trained in forensic accounting and in insurance fraud detection.

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