Life insurance — poor cousin in the world of fraud?

BLOG_fakeDrowningLife insurance scams don’t often command the attention that their bigger cousins — medical fraud and car scams — do. The incidence of fraud in life insurance pales in comparison. But that doesn’t mean there isn’t a lot of fraud in this line of insurance. And cases that do come to light can be highly interesting.

Consider four from this week:
• 22-year-old Jonathan Roth of New York helped his dad fake a drowning off of a New York beach. The older Roth had recently tripled his life insurance and allegedly was hiding out, waiting for his payday. The case surfaced when Jonathan’s dad got pulled over for speeding in South Carolina.

• A $2-million life policy is at the center of a murder case against Andrea Sneiderman, mother of two in Georgia. Police say Sneiderman was looking for an easier, debt-free life. Sohe allegedly convinced her former boss to shoot her husband so she could live off of the insurance proceeds.

• In Chicago, Russell Wasendorf Sr., chief executive of a failed brokerage firm, recently boosted his life insurance to $6.9 million. He attempted suicide after allegations arose the he stole $100 million from his firm. He thought the life payout might help partially make his victims whole, officials surmise. No such luck.

• A lawsuit in the U.K. accused executives of Phoenix Life of paying themselves millions as the company headed towards insolvency. The suit accuses the company of secretly trying to purge billions of dollars of future liabilities. They caused policyholders to lapse or surrender their policies, refused to pay death benefits when policies matured, and canceled the firm’s own policies while keeping the premiums.

With so much life insurance fraud in the news, the New York Alliance Against Insurance Fraud is distributing a half-dozen tips for consumers to help counter these schemes. The tips include:

• Know that these scams increase the cost of your insurance policy;
• Be careful of someone taking out a policy on your life;
• Don’t try to fake your own death. It’s not worth it;
• Beware of “churning and twisting schemes” by insurance agents; and
• If you hear or suspect any type of insurance fraud, report it immediately.
• Don’t encourage or assist anyone thinking of committing fraud. When the scheme unravels, you’ll face grave consequences too.

Good advice. Life insurance is a vital financial product for families and businesses. We all need to do whatever we can to ensure life policies remain affordable and are not used in nefarious ways.

About the author: Dennis Jay is executive director for the Coalition Against Insurance Fraud.

Is the life payout scam really a scam?

insurance probeBloomberg Markets magazine published an investigative article this week accusing life insurers of duping beneficiaries by sending them a checkbook to access their insurance proceeds rather than just sending a check for the full amount of the life policy.

The magazine breathlessly reported that insurers are “secretly” investing the proceeds and making millions off the widows, orphans and fallen soldiers.

The news media have gone into a feeding frenzy, and the New York AG has launched an investigation. The news release AG Cuomo issued today has a telling headline:

ATTORNEY GENERAL CUOMO LAUNCHES INVESTIGATION OF LIFE INSURANCE INDUSTRY FOR DEFRAUDING MILITARY FAMILIES AND OTHERS OF MILLIONS IN CASH PAYOUTS

I thought investigations are conducted to determine if fraud had occurred, but in this case it appears the outcome is pre-determined — all based on one article.

And speaking of the article, Bloomberg has an unsavory record of trashing the insurance industry. We’ve dealt with their writers on fraud stories in the past, and frankly, their style of journalism is not for us. And that’s too bad because insurers sometimes do unsavory things to consumers that should be exposed. The life payout practice in this case, however, doesn’t appear to be one of them.

I just don’t see the fraud here. As long as insurers fully disclose that beneficiaries can write a check for the full amount of the death benefit and receive the cash quickly, there’s no foul. And as insurers claim, some beneficiaries probably like to earn a little interest while they decide what to do with the money.

Kudos to the National Association of Insurance Commissioners for quickly issuing a rational statement on the issue.

‘Black widows’ featured on American Greed

American GreedIf you happen to be one of the unfortunate souls homebound due to blizzard conditions (like me and my staff), it might be a good night to get caught on your television viewing. CNBC’s American Greed program will feature one of the worst insurance fraud cases of all time.

Black Widows tells the tale of two grannies in California who help out old men down on their luck, offering friendship, shelter and food. In reality, Helen Golay and Olga Rutterschmidt were con artists who took out life insurance policies on innocent old men and then had them killed.

Golay and Rutterschmidt, who are both serving life sentences in a federal prison, were inducted into 2008 Insurance Fraud Hall of Shame. American Greed airs at 9 p.m. eastern time on CNBC. Happy viewing.

Wives killing husbands for life insurance

The incidence of spouses killing spouses to get their hands on high-dollar life insurance proceeds is all too common. It’s a tragic aspect of insurance fraud that’s no laughing matter.

But I must admit that the video below is funny. Still, let’s hope this doesn’t influence viewers the way the Toyota ads did.

Note: If your server blocks YouTube videos, click here to view this video.