Are You Committing Insurance Fraud?

A man looks over the top of a desk with a guilty look on his face.

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Who’s committing insurance fraud? I’m not talking about you, right? You’re an honest person. You pay your premiums dutifully, on time and for years and years without fail. And fraud is a big, ugly word and definitely nothing that would ever be associated with you, right? Allow me to enlighten you.

Insurance fraud is more prevalent than you can possibly imagine. You simply may not be recognizing it by its proper name. How about a few iterations of insurance fraud that you may in fact relate to? (Don’t worry, I won’t tell your fellow readers.)

Padding the deductible

You’ve been involved in a small fender bender. Nothing major — nobody is hurt, and the car isn’t a total loss. You were just minding your own business on a sunny Sunday morning, and while you were at a stop sign, where you naturally made a complete stop, some unsightly character bumps you. Crunch! You pull over, get out of the car and have a, well, conversation with the chap. “Yup, gonna cost him for sure,” you think after swapping insurance info before you’re back on your way.

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A few days later, you’re at your favorite body shop, and they are checking out your car. They tell you the cost and ask you how much your deductible is. You tell them and receive an audible gasp. “Wow, that’s a lot you’re going to have to pay out of pocket,” they say. You agree, and between the two of you, you decide that if you also say the left rear fender had some damage, then the insurer will pay enough to cover your deductible, and voilà!

Nothing out of pocket for you, and a new bumper is yours for the taking! That’s called fraud. Insurance fraud.

Overclaiming a loss

Sometimes the world is just out to get you. You recently moved into a new groovy apartment, and you absolutely love it! It’s in a good neighborhood, with lots of bright sunlight and an open floor plan. It took you a full day to move in all your stuff, and now you’re all set and comfy. Only two nights later, you return home from dinner with friends to find your door ajar. Looking around, you note that nothing looks amiss, but you still have boxes and, wait — sure enough, your laptop is missing. After further investigation, you find your prescription glasses seem to be gone. Wasn’t there another box or two in the room? You can’t remember.

After you contact your insurance company, they provide you with a form to complete, where you’re asked to list all the items taken. You immediately list your new MacBook Pro and glasses, but then you just can’t remember what else is missing. You’re pretty sure there were one or two boxes that are no longer taking up space, but even so, what was in them? Well, you had some pants and maybe some phone-charging cables? Also, a power bank for charging your devices. And you never did get around to buying a case for your laptop.

Before you know it, the inventory list is full, and you submit it to your insurance company. That’s called fraud. Insurance fraud.

Claiming you’re still sick

You’re feeling so miserable you go to the pharmacy and buy a COVID-19 test kit. It indicates you’re positive for the virus. You let your boss know you’ll be out for a bit. Your employer has benefits for you, so your paycheck keeps coming, and the big white duck pays you some benefits as well. After a few days, you still have a slight cough. Otherwise, you feel fine.

But you know, it feels like you’re actually making more money not working than you did working! Not only that, you aren’t having to deal with endless Slack messages and work.

You feel well enough to work but figure what the heck, you’ll milk it for another few days, or a week. That’s called fraud. Insurance fraud.

Fraudulent behavior like this has a huge cost

Many people think the above examples are not fraud and are really just how the world works, that they’re built into the system, into the pricing. It may surprise you to know that there is an estimated $80 billion in insurance fraud in the health insurance industry alone. Auto insurance: $29 billion. Home insurance: $30 billion. And workers’ compensation: a mere $7 billion. By the way, these are dollars per year.

Finally, if you are one who thinks this is part of the system, you should also know that these levels of fraud are estimated to add an increase to the average individual’s insurance policy of about $800 to $1,000 per year. Would you like to save $1,000 a year on your insurance premium? I bet you would.

Insurance fraud by any other name is still insurance fraud. And in case I haven’t made it clear: Don’t do it. Not only is it against the law, it costs billions of dollars and is grounds for an insurer to deny your entire claim, not just the part that is fraudulent.

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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Karl Susman is a veteran insurance agency principal, nationally engaged insurance expert witness and broadcast host who translates insurance from jargon to judgment. For more than three decades, he's helped consumers, courts and policymakers navigate coverage, claims and compliance. As Principal of Susman Insurance Agency, Karl works directly with households and businesses to compare options and make clear, defensible coverage decisions.