Life Insurance Scams: How to Avoid Them

When looking for life insurance in Canada, it's important to be aware of potential scams. Some insurance brokers may try to sell you insurance that doesn't actually provide any protection, while others may charge high premiums but then refuse to pay out when you make a claim.

By knowing how to spot a life insurance scam, you can protect yourself from life insurance fraud and ensure that you're getting the best possible deal for your coverage.

What are life insurance scams?

A life insurance scam happens when someone tries to sell you insurance that you don't need, or worse, a policy that doesn't exist. 

Con artists in Canada often use high-pressure tactics to get you to buy life insurance from them, and they may even lie about the benefits of the policy.

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What are the most common life insurance scams?

There are many different life insurance scams, but some of the most common life insurance scams in Canada include:

Selling life insurance to people who don't need it

Some scammers target people who don't actually need life insurance. They'll often use high-pressure tactics to get you to buy a policy..

Selling fake life insurance policies

Other scammers may sell you a life insurance policy that doesn't actually exist. They'll take your money, but you won't get anycoverage from the life insurance policy.

Selling life insurance with fake benefits

A con artist may try to sell you life insurance with fake benefits. For example, they tell you that the policy will pay out double if you die in a car accident. But, in reality, there is no such benefit.

Fraudulent agents or companies

There are also life insurance fraud agents who may sell you a policy that doesn't exist. They use false information to get you to buy the policy.

Churning

Churning is when a life insurance agent persuades you to cancel your existing policy and replace it with a new one. This is often done so that the agent can get a commission for selling you a new policy.

Being told you're a beneficiary

In these types of life insurance scams, you are contacted by someone who says that you're a beneficiary on a life insurance policy. They'll then ask you to pay them a fee in order to collect the money.

Premium diversion

‍ This is when someone convinces you to pay your life insurance premiums directly to them, instead of to the life insurance company. The con artist will then pocket the money and you won't get any coverage.

Forgery

In this scam, the scammer can forge your signature on a policy. Then, they are able to make changes to your policy, such as increasing the benefits, without your knowledge.

Can buying life insurance lead to identity theft?

Yes. Scammers may ask for your personal information, such as your Social Insurance Number or bank account number, in order to steal your identity. They can then use your identity to open new life insurance policies in your name and collect the death benefits when you pass away.

Identifying life insurance scams and how to avoid them

There are things to look out for to identify and avoid life insurance scams in Canada:

Life insurance agent is pushy: If the agent is being pushy and trying to pressure you into buying a policy, be wary. A good broker will give you time to make a decision, and they won't try to pressure you into buying a policy that you don't need.

Life insurance agent promises unrealistic benefits: If the agent is promising benefits that seem too good to be true, be careful. For example, if they're telling you that the life insurance policy will pay out double if you die from cancer, it’s probably related to life insurance scams.

You're asked to pay in cash: If you're being asked to pay for the life insurance plan in cash, you might be the victim of a scam. This is a red flag, as most life insurance policies are not paid for in cash.

Don't buy life insurance from someone you don't trust: If you're thinking about buying life insurance, make sure you only buy it from someone you know and trust.

Do your research: If you're thinking about buying life insurance, make sure you do your research first. You can talk to your family and friends, read life insurance reviews, and compare policies to find the best one for you. Make sure you aren't talking to fake life insurance companies, agents, or buying fake policies.

Ask questions: You should understand everything about the policy before you purchase it.

Be careful with information you share: The life insurance agent will need some personal information from you in order to give you a quote, but you shouldn't give them more information than they need.

Life insurance agent doesn't ask about your needs: A good agent will ask questions about your needs before trying to sell you a policy. If someone tries to sell you life insurance otherwise, be suspicious.

Life insurance agent only offers insurance without a medical exam: Most policies require a medical exam. If someone tries to sell you life insurance without a medical exam, be suspicious.

Life insurance agent offers insurance without buying from an insurance company: If someone offers to sell you life insurance without going through an insurance company, don't do it. This is a red flag that you may be dealing with a scammer.

Can you be scammed after purchasing the policy?

Yes, you can be scammed even after buying a policy. For example, the scammer may tell you that you need to pay an additional premium to keep the policy in force, or they may say that you need to pay for extra coverage.

Here's what you should look out for even after you purchase the policy:

• The life insurance agent is asking for more money: If this happens after you've already purchased the policy, be wary. 
• The life insurance agent is trying to get you to cancel your policy: This could be a sign that you're being scammed and they're trying to get you to cancel the policy so they can keep the commission.
• The agent suggests making a big change to your existing life insurance plan: Similar to above, they are likely trying to get a commission from selling a new policy

Target demographic for life insurance scammers

A life insurance scammer is typically looking for someone who is:

• elderly
• has a life insurance plan
• is terminally ill
• has a family member who is terminally ill

However, life insurance scammers have been known to target anyone, regardless of age or life circumstances.

If you are an informed buyer and know what life insurance scams to look out for, life insurance scam artists will avoid working with you. Better yet, you will be able to easily identify trusted licensed life insurance agents for your needs.

Check if your life insurance agent is legit

Since life insurance is regulated by each province in Canada, it is easy to figure out if you're being scammed or not. 

In Ontario for example, the government provides resources that can help you determine whether your life insurance agent is legit or a scammer. One resource is created by the Financial Services Regulatory Authority of Ontario, and it can help you identify agents in Ontario with a life insurance licence. The tool is easy and quick to use.

Check with the licensing authority in your province for more details.

Check if your life insurance company is legit

As mentioned above, life insurance is regulated in Canada, meaning that all agents must have their licence to sell life insurance. It doesn't matter if the agent is work for a big company or is self-employed to be a life insurance provider in Canada. You can use the information from above to verify if your agent is licensed and works for a legit company in Canada.

There are also a few other indicators of a fake insurance company. Legit life insurance companies never ask clients to share personal details, like bank or money transaction information, through emails or over the phone. Another red flag is being asked to make payments to a third-party company and not directly to the life insurance company.

You can also verify if a company in Canada is legit by searching their AM Best Company score and their Better Business Bureau rating.

What to do if you’ve been scammed

If you think you've been the victim of a life insurance scam in Canada, there are a few things you can do:

• Contact your local law enforcement
• Call the life insurance company
• Contact your state insurance department
• Reach out to the Better Business Bureau and similar online sites

You can also contact the Canadian Anti-Fraud Centre number at 1-888-495-8501 to report life insurance fraud.

If you've been scammed, the potential consequences include losing money, or worse, your identity. If you think you've been scammed, contact your local law enforcement, the life insurance company that the scammer claimed to represent, or your provincial regulatory body (e.g. FSRA if you live in Ontario).

Conclusion

While a life insurance fraud can come in many different forms, there are some commonalities that you can watch out for. 

By being aware of these red flags, you can protect yourself from becoming a victim of life insurance fraud. And if you do unfortunately fall prey to a scammer, don’t hesitate to reach out for help. 

The consequences of being scammed can be devastating, but we want to make sure that doesn’t happen to you. If you are looking for coverage from Canada’s most trusted insurance companies, reach out to us and a licensed advisor will be happy to assist you.