Before I started writing about life insurance, I assumed it was something that only older people could benefit from. After all, life insurance is commonly used as a tool to leave money to heirs and provide extra income during retirement.
But after some research, I learned that life insurance is hugely beneficial for young people, too. You can never prepare for the unexpected, and life insurance can give you some much-needed peace of mind.
Life insurance is a solid investment for many young people, but if you’re purchasing a policy for the first time, it’s important to be aware of common scams.
Unfortunately, life insurance scams are a real threat, and if you’re not diligent, it’s easier than you think to fall for them.
1. Overpaying for coverage
Life insurance can be pricey, depending on the type of policy you buy. But all too often, people get scammed into overpaying for coverage.
Technically, life insurance agents are allowed to upsell you. However, this practice can get shady when the agent tries to convince you to add every rider to your policy, like a child rider when you don’t even have kids.
A scammy agent might also attempt to sell you a more expensive policy than you need, just so they can bring home a bigger commission check.
Churning is when you purchase life insurance, and down the line, the agent offers to upgrade your coverage to a policy with a higher amount of value.
For example, an agent might suggest that you switch from a term life policy to a whole life policy for a reduced premium, leading you to think you’ll get a better bang for your buck.
However, insurance agents aren’t always truthful. A churning scam occurs when you get tricked into buying a new policy that is actually less valuable, allowing the agent to earn more commission.
3. Identity theft
Most people choose to pay their life insurance premium in monthly installments or enrolling in AutoPay.
To take advantage of this, hackers disguised as insurance agents will sometimes call life insurance customers to remind them of an “overdue payment.”
They request the policyholder’s credit card information over the phone and then use that information to make major purchases, like a car. If you fall for this scam, and the hackers get access to your financial information, it can wreak havoc on your credit.
4. Beneficiary scams
One of the most common life insurance scams is the beneficiary scam, which involves phishing in order to collect personal information.
You might receive a call or email that claims you’re a beneficiary on a deceased family member’s life insurance policy and that you’re entitled to a lot of money. Oftentimes, the hackers will claim that a long-lost relative, or even a relative you know, has passed away.
The hackers may ask you to provide sensitive information to collect the money, like your Social Security number or bank account information, which can then be used to open new accounts and steal from you.
5. Fake agents
If you get a random call from someone who says they’re a life insurance agent, and they want to give you a once-in-a-lifetime deal on a new policy, just hang up the phone.
Fake life insurance agents are on the rise, especially today when people’s contact information is so easy to find online. Even if you put yourself on the do-not-call list, hackers still have ways to get your number.
Not only are scammers posing as life insurance agents, but some have gone as far as making up fake life insurance companies in an attempt to scam potential insurance buyers. This is why researching insurance companies is so critical.
If you’re not sure whether a life insurance agent or company is legitimate, reach out to your state’s insurance department. They can verify for you.
Speaking of fake agents, I can’t make this list without talking about agents who will forge your signature on insurance policy documents. It happens more often than you think.
For example, an agent could switch your term life policy to a whole life policy at a higher premium, and make it look like you approved the change. They might also attempt to raise your coverage limit or add a rider to your policy without your consent.
In the end, you unknowingly start paying a more expensive rate, and the agent gets to collect a bigger commission check. This scam can be even harder to spot if your policy is set to AutoPay.
How to avoid life insurance scams
Life insurance scams are real, but they’re mostly avoidable. Here are a few ways to keep yourself safe when shopping for life insurance.
Do your research
When you’re buying anything, whether it’s a used car or a life insurance policy, doing your research is key.
Before you purchase coverage, spend some time researching life insurance companies and their policies, check the carrier’s third-party ratings and read reviews from real policyholders. With thorough research, it should be pretty apparent if the company and its products are legitimate, or if it’s a total scam.
Be careful when sharing personal information
If you are asked to share your credit card number, Social Security number, bank account details, or other personal information with an insurance company or agent that you don’t know, it’s most likely a hacker trying to get access to your personal details.
You’d be surprised how easy it is for scammers to steal your identity with limited information. If you believe that fake insurance companies or agents have stolen your identity, hang up and call the police.
Whenever an agent discusses policy changes with you, be sure to ask questions. If you’ve learned anything from this article, it should be that not all insurance agents (real or fake) have your best interests in mind.
An honest insurance agent will be happy to answer your questions, explain your coverage options, and work with you to find a policy that fits your needs. Fraudulent agents are usually pushy and will avoid answering your questions.
Get an agent referral
In my opinion, one of the best ways to avoid life insurance scams is to ask people in your network if they work with an agent or company that they recommend. I find that word-of-mouth recommendations almost never fail.
Getting an agent referral can also help you avoid hours of researching multiple companies and reading reviews.
Just make sure to vet the agent and company before you choose to work with them.
Trust your instincts
When it comes to life insurance scams, my biggest advice is this—trust your gut. If something doesn’t feel right, it probably isn’t.
Trusting your instincts can help you avoid unpleasant situations down the line. If you have a strange interaction with one agent, in particular, it’s ok to ask if you can work with someone else.
If you do find yourself caught up in a life insurance scam, notify the company immediately.
Life insurance scammers are out there, and they’re waiting to take advantage of easy targets. It’s not just older life insurance buyers that are getting scammed, either. Anyone can become the victim of life insurance fraud, even if you know what to look for.
To avoid life insurance scams, make sure to do your research, ask lots of questions, and above all else, trust your instincts when something feels off (it usually is).
If your parents or grandparents are shopping for life insurance, I also recommend talking to them about these risks. When people are aware of potential life insurance scams, they are much less likely to fall for them.