Understanding Car Insurance Fraud and the Penalties

October 17, 2019

Providing incorrect or deceitful information to an insurance company is insurance fraud. Deceitful claims cost insurance companies billions of dollars every year. This, in turn, costs consumers money in the form of higher premiums. Keep reading to learn the most common forms of car insurance fraud and the penalties they incur.

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What is Car InsuranceFraud?

People can commit a variety of different types of car insurance fraud. Anytime that you falsify information to gain money in a claim, it’s fraud. For example, setting up a car accident, purposely ‘losing your car’ or falsifying the injuries you experienced in a ‘real’ car accident are all fraud.

Insurance fraud is when the insured financially benefits from something that didn’t occur. The insurance company pays out on a claim that never existed. This costs the insurance company a lot of money as each claim is a loss for them. In order to recoup the loss, they must increase the premiums across the board, affecting even those that didn’t commit insurance fraud.

Minor Car Insurance Fraud

The car insurance fraud with the least repercussions is sometimes known as misdemeanor fraud. In this case, drivers exaggerate the circumstances of something that really did happen. For example, you were in a car accident and hurt your neck. That’s real. But, you exaggerate the injuries in order to get more money out of the insurance company – that’s fraud.

Lying on your application for insurance is another type of ‘soft insurance fraud.’ This could mean lying about who drives the cars, where you store the car, or how much you drive it. Each of these factorsaffectsyour premiums. If you don’t provide truthful information, you could be cutting the insurance company short of the premiums you owe.

In most cases, minor fraud results in hefty fines as well as possible probation or jail time in rare cases. It could cost you more than $10,000 in fines and in serious cases, up to five years in jail.

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Major Insurance Fraud

Major insurance fraud occurs when you have a ‘forced’ claim. For example, you stage a theft or you burn your car and make an insurance claim. These claims aren’t real and result in much heftier penalties as a result.

Insurance investigators have methods to determine when a claim isn’t real. If they suspect it is the case, they will take their time looking for signs of fraud. For example, if you experience financial trouble and can’t make your car payments any longer, you may cause damage to your car or fake its theft in order to rid yourself of the car and get money out of it. If the insurance investigator gets wind that you are in financial trouble, he or she may investigate the issue further.

Felony insurance fraud typically results in jail time, unlike minor insurance fraud. You could spend up to 10 years in jail and pay fines as high as $150,000.

The actual penalties for insurance fraud vary by state and occurrence. The best way to avoid dealing with the consequences, be as honest as possible on your applications and don’t over exaggerate any issues that occur as a result of a ‘real’ claim. Insurance is there it help you in a time of true need. Taking advantage of the system harms you and everyone else that is a client of that insurance company.

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