Written by Andy Gurczak

September 27, 2021

Insurance Scams: How to Avoid Fraud

Watch Out For These Scary Insurance Scams

Insurance scams are on the rise, and no one wants to be the victim of a scam. According to the Insurance Information Institute, insurance scams result in about $40 billion in losses every year. Losses that insurance companies, taxpayers, and the victims of these scams are forced to pay through higher insurance premiums. Insurance fraud can cost an average household up to $700 per year.

For this reason, you should be aware of these scams and how to protect yourself whether you have homeowners insurance or even auto insurance. Fortunately, several signs make insurance scams easy to identify.

You need to be on the lookout for cyber crooks, unsolicited contractors, and other fraudsters. With this in mind, the scariest part about scammers is that they look like everyone else and operate year-round. Therefore, you can be the victim of fraud any time of the year and at any place.

However, it’s a good idea to familiarize yourself with possible types of insurance scammers. Also, learn how to protect yourself from them. So read on below to learn more about insurance scams.

Insurance Scams

Watch Out for these Insurance scams.

Want to make sure you don’t fall victim to one of these insurance scams yourself? Here’s what to be on the lookout for:

  • Unsolicited contractor and repair offer.
  • Phone calls and emails selling you a new policy or saying your insurance coverage has expired.
  • Ghost brokers
  • Exaggerated damages or injuries.

Fake Contractors

In the aftermath of a natural disaster, scammers dressed as legitimate contractors prey on damaged neighborhoods. They go door to door, offering victims services like roof repair scams. In fact, they can even call your home directly. The National Association of Insurance warns consumers to watch out for fraudulent contractors hoping to take advantage of vulnerable people.

For example, a typical crook contractor scam works the following way. Let’s say a wildfire hits your neighborhood and burns part of your home. A person who claims they are a contractor then contacts you. After, they’ll come in with a low-ball bid and pressure you to sign a contract on the spot or pay cash upfront.

Finally, the scammer skips town with your payment. Or if they actually start repairs, it’s often shoddy or incomplete work with substandard materials.

How to avoid this type of scam:

  • First, contact your insurance company as soon as possible and file a home insurance claim. Then, have an insurance adjuster inspect the damage. Moreover, if a contractor completes the repairs before your adjuster’s visit, your claim could be denied. As a result, you could be stuck paying out-of-pocket.
  • Whether you file a claim or not, ensure you get more than one damage estimate. So take your time, and don’t let a contractor pressure you into signing a contract.
  • Work with licensed and insured contractors. In fact, you can always ask to see the contractor’s license and liability insurance. With this in mind, ensure you check that the effective policy dates have not expired.
  • Also, research your contractor. Check if they’ve had any complaints with the Better Business Bureau and ask for client references. Furthermore, check to see if they are members of any local, regional or national roofing industry associations.
  • Get a signed contract before the contractor begins any work. The contract should specify the cost, time and payment schedules, and any other guarantees.
  • If possible, do not pay in cash. Instead, pay by check or credit card. Only when the work is complete to your satisfaction can you pay in full.
  • Last but certainly not least, contact local law enforcement if you suspect a scam.

Insurance Scam Contractor

Cyber Crooks

You have probably received plenty of unsolicited emails with catchy headlines. But beware! Fraudsters have hundreds of techniques to steal your personal information through promising emails. For example, they use phishing, spoofing, spam, and robocalls with a COVID-19 twist. With this in mind, these techniques are specifically designed to appear official. And as though a genuine and well-known insurance firm is sending it.

Here’s how email scams work. To illustrate, an email arrives offering lower insurance premiums if you just visit the link attached. You click on the link and download malware that can then steal your personal information from your computer. Moreover, text messages and robocalls use a similar strategy.

However, there are ways to avoid this type of insurance frauds:

  • Don’t open emails from people you don’t know, and be wary of any links or attachments. Most importantly, do not give away any personal information in an email. Information such as passwords or banking and credit card information.
  • If you get a suspicious text or phone call from an unknown number, it’s best not to engage. Don’t click on any links in a text, and do not supply your personal information over the phone. Government agencies will never call you and ask for money or personal information.
  • You can also up your defense against cyberattacks by purchasing identity theft insurance. You can typically get identity theft insurance from home insurance companies, credit card companies, or identity theft protection companies.

Insurance Scams Hackers

Ghost Brokers

Another type of insurance scam is ghost brokers. These types of scammers pose as insurance agents and apply for a genuine policy in your name. They then keep your premium payments but cancel the policy shortly after. Of course, all without your knowledge.

This practice allows the fraudsters to deceive unsuspecting “customers” into thinking they have a legitimate policy. As a result, the victim may only find out that the policy was canceled after making an insurance claim.

Furthermore, ghost brokers typically advertise cheap insurance on social media sites or messaging apps. In fact, insurance fraudsters typically tout policies that are much cheaper than competitors’ policies. So if a so-called agent’s insurance rate seems too good to be true, it probably is.

In order to avoid this type of insurance scam, be wary of:

  • Agents who advertise cheap insurance on social media sites or messaging apps are a big red flag.
  • Also, beware of agents who communicate solely via social media or email.
  • As well as agents who ask for cash-only payments in person or through social media and cash-transfer mobile apps.
  • Agents who promise to secure an insurance policy for you. Even without providing communication or documents from the insurance carrier.

Tips to avoid a fake insurance policy:

If you’re in doubt about the legitimacy of an insurance agent or a policy, the NAIC says you should:

  • First, call your state’s insurance department to confirm that the agent is licensed to sell insurance.
  • Second, don’t sign any paperwork until you’ve checked that the agent is licensed.
  • As mentioned before, be wary of agents who ask for cash-only payment. Don’t make any payments until you’ve confirmed the agent’s license.

Insurance Scams Ghost Brokers

Exaggerated Damages or Injuries

Sometimes, the scam is just an intentional exaggeration of losses by other parties. For instance, repairmen or contractors may inflate the cost of the repair service to make more money on the repair.

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