The 2023 Insurance Fraud Survey by Deloitte highlighted an increase in fraudulent activities within the life and health insurance sectors in India. This surge can be attributed to factors such as the widespread adoption of digital processes (34%), the shift to remote work after the pandemic, and weakened controls (22% each).
Life insurance is a lawful arrangement between the policyholder and an insurance company. In this pact, the insurer (the life insurance company) agrees to give a certain amount of money to the beneficiaries chosen by the policyholder. This money is provided after the policy holder’s passing or a set period. To uphold the policy, the policyholder pays regular fees to the insurance company. However, there are dishonest people who engage in insurance fraud, causing harm to the insurer, policyholders, and genuine customers. Knowing the typical types of frauds in India can assist in evasion.
Frauds Directed at Insurance Companies
Application Fraud
Application fraud happens when a policyholder deliberately gives false details on their life insurance application. This might involve falsely stating health, job, or financial status to get a cheaper premium or higher policy benefits. It’s also called concealment or material misrepresentation.
Claims Fraud
Claims fraud occurs when a policyholder or nominee submits a dishonest term insurance claim. This might involve pretending to pass away or be a victim of a crime to get the policy benefits.
Forgery
Forgery occurs when someone, often family members, changes or falsifies a life insurance policy. This might involve altering the beneficiary or increasing the death benefit without the policyholder’s knowledge.
Frauds Directed at Policyholders
Phony Policy Fraud
Phony policy fraud happens when a client buys a counterfeit life insurance policy. This kind of deceit is typically carried out by swindlers who sell fake policies to unsuspecting buyers or promise additional bonuses or loans. The fraudster keeps the premiums, causing customers to lose both money and policy benefits.
Identity Theft
Identity theft takes place when someone steals a customer’s private information and uses it for deception. The deceiver then receives the policy benefits even though they’re not the genuine policyholder.
Phishing Scams
Phishing is the practice of delivering fake messages that appear to come from a trusted source. It is normally done by email. In the realm of Insurance, you might get a notification saying that your insurance has expired, or you might be redirected to a portal where you are required to pay a sum to get your maturity amount.
Consequences of Detecting Insurance Fraud
When life insurance fraud is found out, various outcomes may follow (example list):
- Outcome #1 – Denial of the life insurance policy: If fraud is found, the insurance might reject the policy entirely. This indicates that the policyholder or nominee won’t receive any benefits from the policy, even if the life assured passes away.
- Outcome #2 – Cancellation of the life insurance policy: If the policy isn’t outrightly rejected, the insurance firm might still cancel it if they find it was obtained deceitfully. This implies the policyholder will lose all coverage.
- Outcome #3 – Criminal charges: Occasionally, life insurance fraud can be a criminal act. If the wrongdoer is apprehended and found guilty, they may encounter fines, imprisonment, or both.
- Outcome #4 – Civil lawsuits: If the insurance company experienced financial losses due to the fraud, they might also take legal action against the wrongdoer for compensation.
How Can You Avoid Falling Prey to Life Insurance Fraud in India?
1. Careful review before purchasing the plan
The most important way to prevent term insurance fraud is to thoroughly examine the policy brochure before buying a life insurance plan. Read and understand the terms and conditions to ensure that the policy is legitimate. The terms should be fair, and if the policy sounds too good to be true then you need to evaluate the insurers credentials and claim settlement ratio. Being well-versed in the policy details will equip you to identify any discrepancies later on.
2. Read the policy documents thoroughly to ensure authenticity
Even if you’re familiar with the plan’s details, don’t complete the policy papers without reading them. Cross-check the information provided in the policy papers with what’s in the brochure. This confirmation guarantees the authenticity of the policy documents and keeps you protected from life insurance fraud. If you’re purchasing insurance through an intermediary, verify their credentials to ensure they’re a licensed agent.
3. Never provide original personal documents
An extensively emphasized precaution to prevent fraud in any transaction is to never hand over your original documents. Insurance companies never request original copies of documents such as PAN card, passport, bank account passbook, driving license, etc. If anyone demands your original documents, promptly inform your insurance company about the situation.
4. Make premium payments online
A highly effective life insurance fraud prevention measure is to use a secure method of paying premiums online. Online payments via the insurance company’s website eliminate any chance of fraud. Check the premiums before the first payment using an online term insurance calculator to check if the quoted amount is close to the company standard. Nevertheless, if you’re making an offline payment, use a check or a demand draft that’s payable exclusively at the authorized branch of the insurance company.
5. Exercise caution with checks
The most prudent tip to avoid scams demands extreme caution when issuing a check. Whether paying a premium for a life insurance plan or engaging in any other transaction, never provide a blank check. Blank checks can be easily manipulated, leading to substantial trouble and financial harm.
6. Keep User IDs and passwords confidential
At any point in a transaction involving your life insurance plan, you should never disclose your insurance website account’s user ID and password. This information is strictly private, and even the insurance company personnel shouldn’t request it.
7. Authenticate the insurance company representatives
In preventing fraud, a crucial step is to exercise care when interacting with individuals who assert they represent the insurance company. Request the identity card and company license issued by the Insurance Regulatory and Development Authority of India (IRDAI) from the person claiming to be the insurance agent. Additionally, report your encounter and authenticate their particulars with the company. This safeguards you from falling prey to counterfeit agents.
Conclusion
Life insurance frauds represent a substantial risk to policyholders and the general integrity of India’s insurance sector. While insurance companies implement strict measures to identify and thwart deceitful actions, policyholders must also familiarize themselves with prevalent fraud types and remain watchful. By cultivating awareness and advocating for ethical conduct, we can jointly tackle life insurance fraud, securing a trustworthy future for policyholders nationwide. These practical tips for preventing fraud can safeguard you from life insurance scams and provide peace of mind.
Source: Deloitte’s Insurance Fraud Survey 2023
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