Insurance Fraud

Example

“The man was convicted of insurance fraud after investigators discovered he deliberately set fire to his failing business to collect on his property insurance policy.”

Memory Tip

FRAUD spells trouble: Fake claims, Risky behavior, Altered evidence, Untrue statements, Deliberate deception.

Why It Matters

Insurance fraud costs the average family hundreds of dollars annually in higher premiums, as insurers pass fraud costs to all policyholders. Understanding fraud helps you avoid accidentally committing it and recognize when you might be a victim of fraud schemes like staged accidents.

Common Misconception

Many people think small exaggerations on claims or applications aren't serious and won't be detected. In reality, insurance companies use sophisticated technology and investigation techniques to detect fraud of any size, and even minor fraud can result in claim denial, policy cancellation, and criminal charges.

In Practice

During a minor fender-bender, Tom was tempted to claim his existing bumper scratches were from the accident to get them repaired 'for free.' However, he learned this constitutes fraud punishable by up to 5 years in prison and $50,000 in fines. Instead, he filed an honest claim for $1,200 in actual damage from the accident, which was paid promptly without investigation complications or legal consequences.

Etymology

From Latin 'fraus' meaning deception or deceit, combined with insurance terminology as organized fraud schemes emerged in the early 20th century alongside the growth of the insurance industry.

Common Misspellings

More in insurance

Other insurance terms you should know

See Also