888-407-0714Start my Quote

What is Life Insurance Fraud?


Life insurance fraud occurs when an insurance applicant, policyholder, or company commits intentional deception in order to illegally receive policy benefits. When most people think of life insurance fraud, they think of high-profile news stories like faked deaths, but this is not always the case. More common types of fraud include lies on insurance applications, which can still result in serious consequences for policyholders, including payout refusal. Here are some of the most common types of life insurance fraud and what you can do to avoid their consequences.

What is Considered Life Insurance Fraud?

According to the National Association of Insurance Commissioners, annual costs from life insurance fraud cases are estimated to total more than one hundred billion dollars. Life insurance fraud can occur at any stage of the process of buying, selling, or using insurance policies. While it's most common for policyholders to commit fraud, insurance agents and companies can also be responsible, so it's important to be aware of risks before shopping for a life insurance policy.

Material Misrepresentation

Material misrepresentation, also known as application fraud, occurs any time an individual knowingly gives incorrect or incomplete information to their insurance company. According to NAIC data analyzed by the Los Angeles Times, over two-thirds of disputed life insurance claims involve some kind of material misrepresentation. This can include misleading information provided at any stage of the application process, from initial application paperwork through your comprehensive medical exam.

Material misrepresentation requires provable intent to fraud, so don't stress about minor mistakes on your application. For instance, if you guess your weight wrong when filling out your application, you won't be investigated for fraud. This is considered within the normal margin of error. Medical record verification may result in a higher quote than originally offered but, it shouldn't affect your ability to secure a policy.

However, intentionally lying during the application process can result in rejection or fraud investigation. Though it might seem tempting to downplay any health or lifestyle factors that could result in a high monthly premium, lies on your application will only lead to trouble in the future. For example, lies about smoking habits can easily be caught on medical records. Even if your application is accepted, you could be subjected to much higher rates than you were quoted.

Claims Fraud

Most newsworthy fraud cases fall under the category of claims fraud. These kinds of cases involve faking or causing circumstances that would result in payout due to conditions other than the natural death of the policyholder. They often involve dramatic actions like death fraud, where a policyholder attempts to fake their own death in order to collect payout benefits. In rare cases, beneficiaries can even go so far as to commit premeditated murder of a policyholder, making it seem like an accident in order to receive payout.

Both of these types of fraud are illegal and will not only result in denial of payout, but could lead to prosecution and jail time.


Forgery occurs when a party other than the policyholder changes policy information by illegally assuming the policyholder's identity.This type of fraud is surprisingly common given how easy it is to change policy information online. While many instances of forgery are the result of random identity fraud, it's also common for beneficiaries to change policy details illegally.

Only the owner of a policy can change information about that policy. Forgery cases can result in consequences ranging from denial of claims to prosecution, depending on the severity of the fraud.

What about Insurance Company Fraud?

While most cases of fraud are committed by applicants and policyholders, there are also risks to watch out for with life insurance agents and companies. Phony policy fraud occurs when scammers pose as agents and attempt to sell fake policies, using methods like brand-name recognition to trick unsuspecting customers. After direct payments are requested, scammers pocket the fraudulent premiums and disappear.

Always make sure you're working with a licensed agent from a reputable company when you shop for life insurance policies.

What are the Consequences of Insurance Fraud?

The consequences of life insurance fraud can vary depending on the type of fraud committed, but often include rejection of life insurance applications, cancellations of policies, or prosecution.

Rejected Applications

Most fraud cases are minor and only result in application rejection. Sometimes, in less severe cases, applications may be accepted at a much higher rate than previously quoted. Your fraud case information may also be distributed to other companies through the Medical Information Bureau database, which could result in automatic rejection of any future life insurance applications you submit.

Cancelled Policies

Even if fraud isn't uncovered during medical record verification, there is still a chance that lies could come to light later in your policy's term. If your company uncovers that you failed to disclose a previous diagnosis or misrepresented yourself on your application, your policy could be cancelled or voided. Though you would receive a refund for premiums paid, denial of payout could cause financial hardship for you and your family.


Cases of fraud involving deliberate deception, such as death fraud or premeditated murder, are a crime in all 50 states. If you attempt to commit claims fraud or forgery, you could end up in court.

What is the Life Insurance Contestability Period?

The life insurance contestability period is a brief period where companies can investigate and deny potentially fraudulent claims. This period begins as soon as a policy goes into effect and typically lasts one to two years. If a policyholder dies within the period, the company has the right to investigate the application information and the circumstances surrounding the policyholder's death.

During this process, the company will review records to ensure that the application was as truthful as possible. If any type of fraud is uncovered, the company can then void the policy, deny payout, or reduce payout amount.

Even if the cause of death has nothing to do with material misrepresentation, the policy may still be voided. For example, failure to disclose risky lifestyle behaviors like smoking can void a policy during its contestability period, even if you were to die of an unrelated cause like a car accident.


Even though it might seem tempting to stretch the truth about application information that could increase monthly premiums, it's unlikely that life insurance fraud will go unnoticed. Life insurance fraud is a serious crime that can result in consequences as severe as jail time, so you should always provide the most truthful information you can during your application process. Even minor cases of fraud can result in major stress for you and your loved ones down the road.