Well, here we go. Let's defraud the poor insurance companies.

"OK, class, here's today's question: When someone defrauds an insurance company, who pays for it? Susie, there in the back."

"We do, don't we?"

"That's right, Susie, because everyone's rates have to go up to cover the cost of the fraudulent claim. Very good."

Of course, a lot of people think of fraud in connection with auto wreck whiplash scams or burning down the house when you can't make the payments, but fraud occurs in life insurance as well. A guy has a million dollar policy with AD&D. He gets AIDS from doing things he should not do. Instead of putting a gun to his head (suicide, no double indemnity), he runs his car into a bridge abutment. Accident, double indemnity. Hardly any way the insurance company can prove otherwise, either. Even though the actuaries know exactly what happened.

But dannye, studies say that most people think of insurance fraud as a victimless crime. Some of our readers will observe that when you say "everyone's rates have to go up" that cost is spread across all of those insured. So what if my rates go up a few pennies? Meanwhile, I've got a brand new DVD player in the car to replace the one that was "stolen" (nudge nudge, wink wink). And why did my rates go up last year? To pay for all of those "stolen" ski boots, car stereos, and whatnot. (This type of fraud is usually called "soft fraud" as it is an exaggeration of a real claim.)

What about medical insurance fraud? This is surprisingly prevalent. Millions of dollars are lost annually to various kinds of scam. Both to patients and to overbilling doctors, or through unnecessary x-rays and other procedures done purely for billing purposes.

The Coalition Against Insurance Fraud estimates the annual cost of various types of insurance fraud to be more than $79 billion per year. They compute that this amount is a hidden tax of more than $900 per family each year on the costs of goods and services.

Here's a scary statistic1: A 1995 study for the Insurance Research Council found that 24 percent of Americans felt it was acceptable to pad a claim to make up for premiums paid in previous years. Nearly 40 percent of residents in large cities found the practice acceptable.

  1. From the Coalition Against Insurance Fraud page at http://www.insurancefraud.org/

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