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This is a serious issue for many reasons, including the fact that it results in higher premiums for everyone.
As individuals, the most important things that you can do are to report any known or suspected instances of buyer insurance fraud and (obviously) not to commit insurance fraud yourself.
Seller insurance fraud, on the other hand, is committed by the policywriter, and includes any way in which the policywriter bends or breaks rules in order to increase their profit.
Although most insurance companies and their representatives are legitimate, the threat of seller insurance fraud is real. However, it can be minimized by understanding some of the main ways in which it is committed and how to recognize warning signs of a bogus deal.
Common Types of Seller Insurance Fraud
•Ghost insurance companies
In these situations, a policy is written by a company that is not licensed (or that doesn’t even exist). The company accepts premiums without actually offering any coverage. This is an outright scam, and too often it isn’t discovered until someone tries to submit a claim and discovers that there was never a policy in the first place.
•Theft of insurance premium payments
This sort of fraud is committed by an employee of an insurance company.
In these situations, he or she would take the premium payment without applying it to the policy. This would frequently result in a cancelled policy, which could have potentially disastrous consequences if the policyholder needed to submit a claim on a policy that has already been cancelled.
•Over-coverage or under-coverage
In these forms of fraud, a policywriter knowingly sells someone a policy that either exceeds or fails to meet the customer’s needs.
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As far as over-coverage is concerned, the cost to a consumer and benefit to the policywriter is pretty obvious.
Under-coverage, however, is just as fraudulent: in the interest of securing a sale, the company would market incomplete coverage as if it was adequate coverage, taking advantage of the confusion that many customers feel when trying to understand the details of an insurance policy.
How to Avoid Seller Insurance Fraud
•Confirm that the company is legitimate.
Thanks to the internet, it is easy to check to see if other people have lodged any complaints against a company, so that is an easy first step. If you have any doubts, check with the Better Business Bureau and your state’s insurance department to verify the company’s legitimacy.
•Shop around for your policies.
This is always a good idea, no matter what: obviously you want to get the best deal for the best coverage.
However, there’s an additional benefit to gathering quotes from several different companies when you are shopping around for a new policy: if one company is charging either significantly more or less than other companies, it can be a red flag that something fishy is going on.
A related issue is to be sure that you fully understand the amount coverage that is being offered on all the policies that you are considering. Don’t hesitate to ask as many questions as you need to!
•Keep records of all of your payments, and verify that they have been received. Nowadays, most people make their premium payments online or with a credit card, both of which offer speedy confirmation that your payment has been processed by the company. If you choose to pay by another method, make sure that you retain all receipts and payment confirmations.
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