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Insurance fraud happens when someone deceives their insurance provider for financial gain, whether it’s to get a cheaper premium or receive a higher payout for a claim. No matter how small the lie is, insurance fraud is illegal in all 50 states.
Here’s what you need to know about car insurance fraud:
What is car insurance fraud?
Car insurance fraud can take many forms, such as faking a car accident, filing multiple claims for a single accident, or lying to get an insurance policy.
Insurance fraud (non-health insurance) costs the industry more than $40 billion each year, according to the Federal Bureau of Investigation, and insurers typically cover the deficit by raising customer rates.
There are two main types of insurance fraud: soft fraud and hard fraud.
Soft insurance fraud involves filing a legitimate claim but exaggerating aspects of it — such as the extent of your injuries or damage to the vehicle — to get a higher payout.
Soft fraud can also refer to lying to an auto insurer to get a lower premium. This type of fraud is more common than hard fraud, and you might not realize you’re being deceptive in some cases.
Some examples of soft car insurance fraud include:
- Registering the car to someone else’s address to get a lower rate
- Over-reporting damage to your car to get a higher payout
- Excluding drivers in the household, such as a teenager, to avoid raised rates
Hard fraud involves planning fraudulent insurance claims for a payout. This type of premeditated offense is more serious and may result in fines or jail time.
Some examples of hard car insurance fraud include:
- Abandoning or destroying your car and reporting it as stolen
- Asking someone to steal your car or strip it for parts, and reporting it as stolen
- Staging an accident and filing a claim
How does car insurance fraud happen?
Auto insurance fraud can happen in many ways. Some of the most common scams include:
Car insurance fraud is a serious and potentially dangerous offense that can result in severe penalties. It can take on many forms, from giving false information to staging an accident, and it may even happen at a body repair shop without your knowledge. But knowing how car insurance fraud happens may help you identify the red flags and avoid it altogether.
If you suspect you’re the victim of fraud, contact your insurer right away. Then get in touch with your state’s department of insurance to report it.
You can also prevent fraud by calling the police when you suspect you’re in a staged accident. If someone approaches you about repairs to your car, do some independent research to make sure the person has a legitimate business. And when you submit a claim, stay in touch with the insurance agency. It may be able to recommend trustworthy auto repair shops and update you on the status of your claim.