Agent & insurer scams

fake insurance policy

The vast majority of insurance agents and companies are ethical, honest and trustworthy. But crooked agents and bogus insurers do exist, and they can fleece you.

The scams

The price you pay

Fight back

The scams

Here are several scams you should watch for...

Stealing your premiums. An agent pockets your insurance premiums instead of sending it to the insurer. Crooked agents may steal your premiums to support their business, feed a gambling or drug habit, or buy luxury goods such as cars or jewelry.

Selling phony insurance. An agent or company rep sells you fake coverage from a phony insurance company. Or the agent sells you bogus coverage using a legitimate company's name, or a name that's similar to a legitimate insurer. You might receive an official-looking policy or proof of insurance that's worthless. You could lose thousands of dollars if you suffer a loss and don't have a real policy to pay your claim.

Selling coverage you don't want or need. Maybe the coverage is real, but it's expensive, unnecessary, and your current policy may already cover that risk. Three examples:

Churning: Dishonest agents might convince people to use the built-up value of their current whole life policy to buy a "better" policy even though their present life coverage is perfectly suitable. The agent gets a nice commission, but you must start building up cash value all over again.

Sliding: An agent or insurer slips you extra coverage you didn't ask for, but do pay for. This can easily add $100, $200 or more to your premium. The agent cheerfully says it's simply part of a "package," or doesn't tell you about the coverage at all. Motor club memberships, accidental death coverage and guaranteed renewable life insurance are three policies that crooked agents sometimes sell to unwitting policyholders.

Twisting: An agent may urge you to change policies prematurely by "twisting" the truth about the downside. If you have an illness, injury or other medical condition, for example, will that "affordable" new health policy refuse to cover it because it's a pre-existing condition?

Worthless investments. You may be urged to invest in insurance-like instruments. One is viaticals, which are investments in life policies taken out on sick or terminally ill people. Viaticals can be a legitimate investment, but some can also be phony or misleading. Another scam is promissory notes, in which agents promise quick, high and certain returns for investing in promissory notes supposedly backed by insurance. Often the promissory notes don't exist, they're just a sham to steal your money.

The price you pay

• You may have no insurance when you make a claim which could cost you thousands of dollars, or even your life savings.

• You may pay thousands of dollars more for unneeded or worthless policies.

Fight back

Take these common-sense steps before you buy...

• Make sure the agent and company are licensed in your state. Be especially careful if you don't recognize the company's name. Contact your state insurance department, which issues licenses.

• Call your Better Business Bureau or local consumer assistance agency to see if the agent has complaints filed against them. Check to see how many complaints have been filed against an insurance company in your state.

• Back off if the agent offers coverage whose price is 30-50 percent lower than competitors. Shop around to find out the normal price range.

• Always pay your premiums by check or money order. In most cases, make it payable to the insurance company, not the agent or agency. Be sure to get a receipt. Photocopy your check or money order for your records.

• Think twice if the agent insists you pay in cash, or tries to sell coverage in unusual situations such as in a restaurant or bar.

• Be suspicious if your agent bills you for premium installments after your first payment. Normally your insurance company or premium finance company handles the billing.

• Buy coverage only after all documents are completely filled out, you fully understand what coverage is included, and what the cost for each coverage is. Make sure your agent clearly explains all.

• Go slow if the agent or company rep seems evasive or can't answer your questions, or tries to sell you coverage without "bothering" your family with the details.

• Never sign a blank insurance form or give your agent power of attorney to sign an insurance application or buy coverage for you.

• Get a copy of every form you sign. If you finance your premiums, make sure your agent gives you paperwork that describes exactly how much you pay for each installment, and what that payment covers.

• Watch out if the sales pitch highlights the surrender and use of cash values in older life coverage to buy new higher-valued policies.

• Contact the company if you haven't received a policy within 60 days after sending in your application.

• Get a second opinion if an agent tries to sell you new and more expensive coverage even though you still have a current policy in effect. Talk to your financial advisor or another agent. Ask the selling agent direct questions, and get the answers in writing: Why do you need this coverage? What are the benefits? Exactly what's covered? How much will it cost?

• Know what your current policy does and doesn't cover. Ask your agent or insurer for a detailed explanation in plain language. Ask pointed questions if you have any doubts about what's in your policy.

• Make sure your insurance company is healthy and can pay claims especially if it's an unfamiliar name. Contact A.M. Best or Moody's to see if the company is financially healthy. Call your state insurance department to make sure it's licensed in your state.