The Most Common and Costly Insurance Scams

Most insurance agents are ethical, trustworthy people, but there are several insurance scams performed by insurance agents you should watch out for.

Stealing Your Insurance Premium

The most obvious is stealing your premium. Basically, this means that a crooked insurance agent will pocket your money instead of sending it to your insurance company.

How to Avoid Getting Robbed:

Be wary of an insurance agent who asks you to pay cash or give them a blank check for your insurance premium. Always pay your insurance premium with a check that clearly states the insurance company's name, and ask for a photocopy of the check. Avoid adding any additional information to your check, such as your social security number. Or, better yet, if your gut instinct is not to trust the agent, go somewhere else.

Buy a 'Better Policy' aka: Insurance Churning

Whole life insurance policies allow you to build up a cash value. Some scam dishonest agents participate in is to convince unsuspecting people of buying a 'better policy' even though their present life insurance coverage is suitable. Since insurance agents get one time commissions on policies they sell, they get a nice new commission. Meanwhile, the duped customer loses the cash value of their old policy and has to start building up cash value in the new one. This scam is called 'Churning' since the agent returns once a year to 'turn, 'turn to earn', or 'churning' insurance policies.

How to avoid "Churning":

If your insurance policy is still in effect, in most cases, you should not need a new policy. If an agent tries to sell you a new policy each year, get a second opinion from a financial advisor or another agent. Ask lots of questions such as "Why do I need this coverage? What are the benefits? and What's covered?" And, get everything in writing.

Adding Unwanted Insurance Coverage as Part of a Package -- Sliding

An unscrupulous agent may 'slide' extra coverage onto your policy without your knowledge or by telling you it is part of a package. This can add several hundreds of dollars to your premium -- and their commission. Be wary of club memberships, accidental death coverage and guaranteed renewable life insurance if you have these through someone else, as these are often added to unknowing policyholders.

How to Avoid Insurance Policy Sliding:

Don't be afraid to ask questions until you completely understand something. Find out what your policy does and does not cover, and ask for a detailed explanation in plain language. Don't be afraid of asking pointed questions, especially if you have doubts about what is in your policy. Part of an insurance agent's job is to explain your policy completely.

Probably the best piece of advice to avoid being ripped off by your insurance agent is to know your insurance agent. When shopping for a new agent, get recommendations from trusted colleagues or friends. You are less likely to be scammed by someone you know.