10 Common Insurance Scams to Avoid: A Guide to Protecting Yourself

Insurance fraud costs Americans billions of dollars each year, and unfortunately, innocent policyholders often become unwitting victims. While the vast majority of insurance professionals operate with integrity, being aware of common scams can help you make informed decisions and protect both your finances and personal information. Here’s what you need to know about the most prevalent insurance scams and how to avoid them.

1. Staged Auto Accidents

How it works: Fraudsters deliberately cause accidents, often targeting drivers who appear to have good insurance coverage. They might suddenly brake in front of you, cause a collision in a parking lot, or wave you into traffic only to hit you.

Red flags to watch for:

• The other driver seems unusually calm or prepared immediately after the accident
• They insist on going to a specific repair shop or medical clinic
• There are multiple passengers claiming injuries from a minor collision
• They refuse to call police or discourage you from doing so

Protection tip: Always call the police for any accident, take plenty of photos, and be wary of anyone pushing you toward specific service providers.

2. Fake Insurance Companies

How it works: Scammers create fake insurance companies or pose as legitimate insurers, offering policies at incredibly low rates. They collect premiums but provide no actual coverage, leaving you unprotected when you need it most.

Red flags to watch for:

• Rates that seem too good to be true
• High-pressure sales tactics or demands for immediate payment
• Lack of proper licensing information
• No physical address or only a P.O. box

Protection tip: Always verify an insurance company’s credentials through your state’s insurance department before purchasing a policy.

3. Premium Theft by Agents

How it works: Dishonest agents collect your premium payments but never actually purchase your policy, or they cancel your coverage and pocket the money while telling you everything is fine.

Red flags to watch for:

• No policy documents or certificates after payment
• Inability to reach your agent
• Notices from the insurance company that you don’t have coverage
• Requests for cash-only payments

Protection tip: Always pay by check or credit card, maintain records of all payments, and contact the insurance company directly to verify your coverage status.

4. Exaggerated Property Damage Claims

How it works: Following legitimate incidents like storms or accidents, some individuals inflate their claims by including pre-existing damage, claiming items that weren’t actually damaged, or hiring dishonest contractors who overstate repair costs.

Red flags to watch for:

• Contractors who go door-to-door immediately after disasters
• Requests for large upfront payments
• Estimates that are significantly higher than others
• Pressure to sign contracts immediately

Protection tip: Get multiple estimates from reputable contractors and be honest about pre-existing conditions when filing claims.

5. Medical Billing Fraud

How it works: Healthcare providers or patients submit false or inflated medical bills to insurance companies, claiming treatments that never occurred or were unnecessary.

Red flags to watch for:

• Bills for appointments you didn’t attend
• Charges for services you didn’t receive
• Unexplained medical equipment charges
• Duplicate billing for the same service

Protection tip: Review all medical bills and explanation of benefits statements carefully, and report any discrepancies to your insurance company immediately.

6. Identity Theft for Insurance Fraud

How it works: Criminals use stolen personal information to open fraudulent insurance policies, file false claims, or receive medical services under your name.

Red flags to watch for:

• Unexpected insurance-related mail or emails
• Medical bills for services you didn’t receive
• Calls about insurance policies you didn’t apply for
• Credit report inquiries from insurance companies you don’t recognize

Protection tip: Monitor your credit reports regularly, safeguard personal information, and report any suspicious activity immediately.

7. Workers’ Compensation Fraud

How it works: Employees stage workplace injuries, claim injuries occurred at work when they happened elsewhere, or continue collecting benefits after returning to work capacity.

Red flags to watch for:

• Injuries reported on Mondays or before holidays
• No witnesses to the alleged incident
• Inconsistent stories about how the injury occurred
• Refusing to see company-approved doctors

Protection tip: If you’re an employer, maintain detailed incident reports and surveillance when appropriate. As an employee, always report injuries honestly and follow proper procedures.

8. Disaster-Related Scams

How it works: Following natural disasters, scammers pose as insurance adjusters, contractors, or relief workers, collecting money for repairs that never happen or inflating damage claims.

Red flags to watch for:

• Door-to-door solicitors claiming to be insurance adjusters
• Requests for upfront payments for damage assessments
• Pressure to sign contracts immediately
• Lack of proper licensing or identification

Protection tip: Always verify the identity of anyone claiming to represent your insurance company by calling your insurer directly using the number on your policy.

9. Fake Death Claims

How it works: Individuals fake their own deaths or that of family members to collect life insurance benefits, sometimes involving elaborate schemes with false documentation.

Red flags to watch for:

• Recent large increases in life insurance coverage
• Beneficiaries who seem unusually calm or prepared
• Suspicious circumstances surrounding the death
• Missing or questionable documentation

Protection tip: Insurance companies typically investigate all death claims thoroughly, so maintain honest relationships with your insurers and report any suspicious requests from others.

10. Phantom Passengers

How it works: In auto accidents, fraudsters claim there were additional passengers in their vehicle who were injured, even though these passengers either weren’t present or weren’t actually injured.

Red flags to watch for:

• Claims of multiple injuries from a minor accident
• Passengers who appear at the scene but weren’t mentioned initially
• Requests for immediate medical attention for minor collisions
• Inconsistent statements about who was in the vehicle

Protection tip: Take detailed photos of all vehicles involved, including interiors, and get statements from all actual passengers at the scene.

General Protection Strategies

Research before you buy: Always verify insurance companies and agents through state insurance departments and better business bureaus.

Keep detailed records: Maintain copies of all policies, payments, and correspondence with insurance companies.

Review statements regularly: Examine all bills, policy statements, and explanation of benefits documents for accuracy.

Report suspicious activity: Contact your insurance company and relevant authorities if you suspect fraud.

Trust your instincts: If something feels wrong or too good to be true, take time to investigate before proceeding.

Moving Forward with Confidence

While insurance scams exist, they shouldn’t prevent you from obtaining the coverage you need. By staying informed and vigilant, you can protect yourself while still accessing legitimate insurance services. Remember that reputable insurance companies and agents want to help you understand your coverage and will never pressure you into quick decisions or unusual payment arrangements.

Taking a few extra minutes to verify information and ask questions can save you significant financial hardship down the road. When in doubt, consult with trusted advisors or contact your state’s insurance commissioner for guidance. Your awareness and caution are your best defenses against insurance fraud.