Life Insurance and Annuity Scams: Don’t Be The Next Victim

Insurance scams are far too common, often targeting seniors. While no area of insurance is immune, a lot of the fraud is happening within annuities and life insurance.

“Most agents are honest, but the unpleasant truth is that agents typically are at the heart of annuity and life-insurance cons,” says James Quiggle, a spokesman for the Coalition Against Insurance Fraud  “They know how to manipulate the products and sales pitches to their favor. Agents also have the incentive of earning large commissions when they make a sale, whether or not the sale benefits the trusting client.”

According to experts a common scam, particularly in the life insurance industry is the fake insurance company. Tony Steuer, creator of Insurance Literacy, says criminals will go to great lengths to create bogus insurance companies and once you hand over the money, they often disappear.  The best defense in this case says Steur is doing your research. “Go online and make sure you are dealing with a legitimate insurance company that is licensed in your state,” he says. “Always make your check payable to the insurance company and not to an agent or agency.”

Annuity insurance is another area that’s rife with scams. Quiggle says one fraud called “twisting” occurs when an agent convinces an elderly client to invest in pricey annuities that they have to hold on to for ten to 15 years or pay a severe penalty for cashing out. The agent gets a fat commission and the client is stuck with an investment that Quiggle says is “nearly worthless.” In another version, an agent will get a client to convert one annuity into another annuity with a different company all to get the commission on the sale. It doesn’t matter to the agent if the annuity is expensive or not suitable for the client.

Churning is another underhanded move in which an agent offers you a policy that is supposedly better than your existing one. Turns out it often costs more and doesn’t give you any extra value, says Quiggle. With churning, “you pay more for the same kind coverage, and the agent collects a new commission,” he says. “If your agent calls you to upgrade your insurance policy, make sure you understand the proposal completely before signing any forms.”

Seniors are undoubtedly the main target of insurance scams but seniors who are nearing their death are also popular with criminals. John Kuo, the insurance expert at NerdWallet says a lot of people who are elderly or near death can fall victim to the stranger-owned life insurance scam. The scammers will loan the seniors money to buy the life insurance, they will fake the applications and when the senior dies they get the payout.  While stranger-owned life insurance isn’t illegal, defrauding the insurance companies with false information is.   “A lot of the loopholes have been closed down,” Kuo of this particular type of fraud.

When it comes to life insurance and annuities not all the fraud that occurs is flat out scams. In many cases its bad advice that ends up hurting the client. “Products that are not suitable for you, that’s the thing we see most often,” says Steuer.

Taking out a life insurance policy or investing in an annuity doesn’t have to end up being a nightmare. It just requires you to be on the lookout for a few red flags and do your due diligence. Experts say if it seems too good to be true chances are it is.  Very complex information or high pressure sales tactics are also telltale signs something is amiss. Also requests to send money directly to the agent or worse a P.O. Box are clues you may be getting taken.

Experts say a big thing to watch out for is pressure to sign on the spot. For instance be wary of anyone who says this offer is only valid for today or tries to get you to sign without giving you time to think about it.

“If you are an older person you’re probably a good target for a scam so it’s really important to look for red flags,” says Kuo. “If you think you are a target get a second opinion.”