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Life Insurance Scams

Dana George
By: Dana George

Our Insurance Expert

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Buying life insurance coverage is all about protecting those you care about after you're gone. What's sad is that there are those who perpetrate life insurance scams, all in hopes of getting their hands on money that does not belong to them. Even worse, the most sophisticated life insurance fraud is often carried out by insurance agents. Here, we lay out some of the most common life insurance scams and discuss how to avoid becoming a victim.

What are the most common types of life insurance scams?

Scams are limited only by the imagination of the crook -- and they are crooks. While not all scammers are insurance agents, insurance agent fraud is real. After all, these people have access to both your personal information and your money. The first step in protecting yourself is recognizing the most common types of life insurance scams.

Identity theft

When your identity is stolen, it can upend your life. One of the most common ways to attempt identity theft is to contact you by email, phone, or letter to request personal information. For example, a scammer may tell you all about a life insurance policy that sounds perfect for you. To "help you get started," the scammer then asks for personal information, including your Social Security number. Once they have your name, Social Security number, and address, they're well on their way to using your identity for their own illegal purposes or even selling your identity to another thief.

The fact that most scammers have a great deal of experience makes them dangerously smooth. It's easy to believe what they're saying. When someone posing as an agent asks for your banking information, credit card number, or mother's maiden name, you may be tempted to give it to them.

Policy switching

Scammers get away with policy switching because most of us are too busy to double check the type of policy we've just committed to.

There are two basic types of life insurance: Term and permanent. Term life insurance lasts a set number of years, while a permanent policy lasts your entire life as long as premiums are kept up to date.

Because term policies only last for a certain number of years, they're far less expensive than permanent life insurance. However, most permanent life policies accrue cash value, making them ideal for those who are concerned about saving money on their own.

Let's say you're having trouble making your permanent life insurance payments, and your agent asks if you'd like them to help you get those premiums down to a more affordable level. If they change your policy from one type to another without your knowledge, it's called "policy switching," and it's a type of scam.

Why would an agent take part in policy switching? To keep you on the roster as a customer and, hopefully, sell you other insurance products at some point. An agent is never allowed to make a change to your policy without your consent.

Premium diversion or misappropriation

According to the FBI, premium diversion is a type of embezzlement and is a common type of insurance fraud. Here's how it works: You send your insurance premium to your agent's office. Rather than send the funds to the underwriter, the agent keeps the money for their personal use.

Another type of premium diversion involves those who pose as agents, collect payments, and then disappear when a claim is made.

Fee churning

Fee churning occurs when an agent replaces a client's coverage with another one with similar or worse benefits. The agent's goal is to continue earning commissions on a single client. Life insurance agents are supposed to protect the best interest of their clients, but when an agent is just looking out for themselves (by churning up new sources of commission), they're breaking the law.


Twisting refers to an agent convincing a client that they need a larger policy (or some kind of change to their policy). What the agent fails to mention is that the upgrade will provide them with a nice, new commission. Frequently, the client never needed a policy change at all.

How to avoid life insurance scams

There are thousands of reputable insurance agents and plenty of responsible life insurance companies. Here's how to avoid those that don't make the grade.

Do your research

Knowing what to look for is half the battle. If you feel like someone is trying to talk you into something you don't need, there's a chance you're being scammed. If you're asked to make a change, research what the change will mean for your bottom line.

Trust your gut and agree to nothing until you're sure it's in your best interest.

Shop around

Before shopping for life insurance, ask friends and family who their insurance agent is. Find out how it's working out for them and if they would recommend that agent and insurance company to you.

If you receive several suggestions, contact each of them to learn which seems like the best fit.

Ask questions

Buying life insurance should not be a quick purchase. Take time to ask questions about everything, from what specific terms mean to what happens if you lose your job and can't make a payment.

Protect your personal information

Be very sure you're dealing with a reputable insurance agent before sharing any personal information. Never send personal information by email, and unless you know an agent well, do not offer information over the phone.

What to do if you're the victim of a life insurance scam

Act quickly

The only way to "act quickly" once you discover a life insurance scam is to make sure you're always in the loop. If you asked your agent to make a change, double check to make sure it was carried out to your specifications. If something looks "off," ask about it.

Whether you make changes or not, it's important to conduct an annual review of your life insurance policy.

Report the fraud

If you discover that you've been a victim of fraud, contact your state's department of insurance. If fraud is found, an agent and life insurance company risk license revocation and legal action.


  • No, life insurance purchased from a legitimate insurance company is not a pyramid scheme.

  • If you're independently wealthy or have no beneficiaries, it might be considered a waste. But if your death would mean that those you care about would have to scramble for money or go without, protecting them is not a waste of money.

  • No, no one can legally take insurance out without your knowledge and permission. If they did manage to do so, it would be nearly impossible to collect upon your death due to safeguards put in place by the insurance industry.

  • If you're unfortunate enough to get caught up with one of the few bad apples in the bunch, here are some steps to take:

    • Understand your rights. No matter how much it may feel as though the "big guys" have all the power, there are laws in place that protect you from an agent or insurance company that knowingly lies to you. In fact, it can be held legally responsible for any punitive and emotional damages you suffer.
    • Hopefully, you've kept good records throughout your dealings with the agent. If not, begin keeping meticulous records once you have an inkling that you've been lied to.
    • Contact an experienced insurance attorney. If they think you have a case, there's a chance they will represent you on contingency. That means they only collect their fee if you win your case.

Our Insurance Expert