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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.

Did you know? The average American family pays an extra $400 to $700 in auto insurance premiums every year to cover the costs of fraud, according to the FBI.

There are two main types of insurance fraud: soft fraud and hard fraud.

Check Out: How Long Do You Have to Report an Accident to Your Insurer?

Soft 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

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

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How does car insurance fraud happen?

Auto insurance fraud can happen in many ways. Some of the most common scams include:

  • False registration: Your ZIP code can affect how much you pay for car insurance. For instance, drivers tend to pay more in high-cost counties or in neighborhoods with higher theft rates. Some drivers lie and register the car to someone else’s address to get a lower rate.
  • Lie on an application: Some drivers are honest about the major details, like their address and driving history, but fudge the smaller details. However, reporting that you’re married, saying you’ve earned a college degree, or greatly underestimating your annual mileage may all count as fraud if they’re untrue.
  • Exaggerated repair costs: This type of car insurance fraud is committed by body shops, and it may occur even when you file a legitimate claim for a car accident. For example, dishonest mechanics may exaggerate the amount of time it takes to repair your car, add fake services, charge for new parts when they actually use secondhand pieces, or inflate the cost of necessary vehicle repairs.
  • Vehicle dumping: This type of fraud involves a car owner destroying or abandoning their own car and reporting it as stolen. In some situations, the car owner sells the car and then files a police report for a stolen vehicle, hoping to receive money through the sale and again through an insurance settlement.
  • Faulty air bag replacement: When you bring in your car for repairs after an accident, a dishonest mechanic may either replace your airbags with counterfeits or not replace the airbags at all. Or, in some reported cases, the body shop may deploy the airbag to increase the insurance claim payout.
  • Defective windshield replacement: Another popular scheme involves a scammer claiming to be a windshield repairman. They may approach you in public and claim that your perfectly fine windshield is damaged and needs to be replaced — and that your insurance will cover it. But these fake repair specialists will replace your windshield with a subpar one, which puts you in danger, and submit an inflated fraudulent claim using your information.

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.

Tip: Consumer advocacy organizations such as the National Insurance Crime Bureau, National Association of Insurance Commissioners, and Coalition Against Insurance Fraud also track this type of information and may provide additional resources.

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.


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About the author
Kim Porter
Kim Porter

Kim Porter is an expert in credit, mortgages, student loans, and debt management. She has been featured in U.S. News & World Report, Reviewed.com, Bankrate, Credit Karma, and more.

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