6 shady behaviors that kill insurance claims

Your mother taught you not to lie, and it's important to heed her advice when you're dealing with an insurance company.

Otherwise you run the risk of voiding an insurance claim or having your insurer pull the plug on your policy. Here are six ways that could happen.

Staging a phony theft

Many people struggle to pay bills, and some will go to extreme measures to get out from under an oppressive auto loan.

Pete Moraga, spokesman for the Insurance Information Network of California, recounts the case of a Los Angeles-area man who was upside-down on his car loan. The guy got the bright idea of driving the car down to Mexico, selling it, saying it had been stolen and filing an auto insurance claim.

Little did the fraudster know that the new owner worked north of the border. When the new buyer tried to register the vehicle in California, authorities quickly realized the vehicle was stolen, launched an investigation, identified the auto's original owner and nixed the car insurance claim.

Letting it all go up in smoke

When gasoline prices start to climb, so do vehicle arson rates, says Frank Scafidi, spokesman for the National Insurance Crime Bureau (NICB). The usual targets are gas guzzlers like SUVs and pickup trucks.

The number of arsons "ebbs and flows, depending on the times," Scafidi says. Getting caught torching your vehicle is a surefire way to invalidate an insurance claim.

Intentional house fires also surge in tough economic times. But you're playing with fire if you decide to torch your home to get out from an underwater mortgage. Moraga says if arson is suspected, your insurance claim will be delayed until an investigation is completed.

If you're tried and convicted of setting your home ablaze, your insurer can deny the claim because most home insurance policies have clauses that exclude payouts for "intentional acts," he says. And that's not to mention the risk of serving time for your crimes.

Fudging your state of residence

It may seem innocent enough to register your vehicle in one state when you actually live in another to take advantage of the neighboring state's lower insurance rates or auto registration fees.

But authorities call it "premium fraud" or "rate evasion," and it ultimately can cost you big time if you need to file an auto insurance claim, Scafidi says.

If you smash into a tree, total your car and file a claim, your insurer might start asking questions and soon catch wind of your actual address. Your insurer will investigate the claim using its own staff, or farm it out to the NICB. If you're caught falsifying where you live, your claim will go out the window.

Pretending you are Old MacDonald

How often do you find Porsches and BMWs out in the back 40? If you believe some auto owners, that's where you'll find their luxury vehicles, Moraga says.

Auto insurance companies may offer discounts of up to 20 percent if vehicles are used almost exclusively on a farm, because the risk of accidents or thefts is far lower than in a city.

If an insurer checks the ZIP code where the vehicle is garaged, it may find the car is actually in the middle of the city, rather than in a rural area. That can result in the insurer voiding the policy and rejecting any insurance claims, Moraga says.

Souping up your vehicle, shutting down your mouth

If you own a Honda but plop an Acura engine into it, remove the safety equipment and modify it to run on nitrous oxide so you can hit the back roads late at night for some moonlight drag racing - well, you're running all kinds of risks, Moraga says.

While it's possible to obtain auto insurance for modified vehicles, you court big trouble if you decide not disclose the changes in order to keep a lid on premiums. In such cases, your insurer is likely to reject your claim following a wreck.

Claiming you're in the pink of health

While you may fear that a pre-existing medical condition will pre-empt you from obtaining life insurance, you're far better off detailing health woes than lying on your application.

You won't get away with pretending you're in the best of health when you're really in the midst of cancer treatment, says Jack Dewald, president of Agency Services Inc., a life and health insurance agency, and past chairman of the LIFE Foundation, a nonprofit designed to help consumers with life and health insurance issues.

Many companies in the life and health insurance field work with the MIB Group, and its fraud protection division is designed to catch those who lie on applications. MIB tracks application answers so that inconsistencies are flagged, and fraudulent answers are noted. Once the fraudulent application is caught, it winds up in MIB's database for other insurance companies to access, Dewald says.

While some people see many of these behaviors as "victimless crimes, it's really fraud and it raises everybody's rates," Moraga says.

The original article can be found at Insurance.com:6 shady behaviors that kill insurance claims