What Is Insurance Fraud?

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Insurance fraud is rampant. There are many types of insurance fraud, including car insurance fraud, business insurance fraud, workers compensation insurance fraud, disability insurance fraud and many more. No matter where it occurs or why, if someone willfully and knowingly makes false statements or conceals information in order to receive financial gain, he is committing fraud. This results in increased premiums and lost profits for individuals, companies and insurers.

Examples of Car Insurance Fraud

Car insurance fraud can take many forms. In some cases, owners will claim their vehicle was stolen after destroying it or leaving it somewhere it cannot be found. Since vehicle insurance often covers the replacement cost of a car, this sort of fraud means the insurance company has to pay the value of the “stolen” vehicle.

Individuals intent on defrauding their car insurance company can also register their vehicles in parts of the country that have lower insurance costs. Typically, more expensive areas or places with higher rates of theft have higher car insurance premiums. By lying about where you reside, you may receive lower insurance rates. This becomes problematic if an accident occurs or a claim is filed, and it is then determined that you don’t reside where you claim.

Other attempts to defraud auto insurers can take the form of exaggerated repair costs. An auto repair shop assigned to fix a vehicle after an accident is paid a certain amount by the car insurance company. If the mechanic uses aftermarket or flawed parts or takes less time to do the work than she claims but still bills the same amount, she is committing insurance fraud. There have been instances of mechanics failing to replace airbags after accidents or pretending that windshield replacements were necessary, as well. In both cases, your insurance company is later billed for services that were never rendered.

Read More: Is it Illegal to Not Have Car Insurance?

Examples of Business Insurance Fraud

Business insurance fraud also causes many unnecessary costs for companies and individuals. Fraud can take many forms. Health care professionals may pretend to render medical services, in the same way that mechanics do, and bill a patient’s insurance company. Staged home fires or other property damage can also be carried out in an effort to collect on homeowners insurance. Renters insurance fraud can occur when an individual sells his possessions but reports them stolen. An extreme form of fraud occurs when individuals fake their own death or the death of another to collect life insurance payouts.

Individuals collecting disability or workers compensation insurance can also attempt to defraud the system. Many exaggerate their injuries or their incapacity to return to work. This can cost companies a huge amount of money in legal fees and spiked insurance rates.

Insurance Fraud Punishment

Penalties for fraud can be severe. According to U.S. Code 1011, penalties for knowingly attempting to commit fraud can include restitution payments. Prison sentences can also be assigned, depending on the type of fraud and its perceived severity.


  • Insurance fraud includes attempts to knowingly mislead an insurance company or provider in an effort to maximize financial gain. It is punishable by heavy fines or jail time.