Is Car Insurance Veiled Scam? Types Of Car Insurance Scams And How To Avoid Them

No, car insurance is not a scam. It is a way of minimizing your financial risks while driving your car. Moreover, when you are buying insurance you can insure your car at an “agreed value” rather than a “market value” to lock in your payout if a total loss happened. So, here the purpose of car insurance is to cover the expenses which the owner is legally liable to pay if there is an accident happens. You will get a part of your insurance premium during an accident, not the full amount. So it might look like a scam but it’s not because this is how insurance works.

Key Takeaways

• Usually, car insurance covers damage to your vehicle and financially protects you if you’re liable for someone else’s injuries or damages
• Soft insurance fraud is very common and it usually happens when there is a legitimate insurance claim or lying when applying for a car insurance policy
• Hard insurance fraud is very easy to detect compared to soft insurance fraud
• A staged accident is a very common car insurance scam
• Some common signs of a car insurance scam are lack of transparency, lack of documentation, unusual requests, reckless driving, etc.

Types Of Insurance Fraud

There are various types of car insurance frauds available and car insurance fraud can happen at any point. Below are some types of car insurance fraud that you have to be aware of so you don’t get scammed – 

Soft Insurance Fraud

This type of insurance fraud is very common and it usually happens when there is a legitimate insurance claim or lying when applying for a car insurance policy. Some of the common examples of soft fraud are – 

1. Missing Drivers: It happens when someone fails to inform his or her insurance company of all the drivers in the household

2. Over-Reporting: When people overvalue various car parts or include old parts in the claim

3. Lies About Location: People use the wrong address to register and buy insurance for the car because of the low insurance rate of that area

Hard Insurance Fraud

Hard insurance fraud is an organized and deliberate act therefore, it is very easy to detect compared to soft insurance fraud. Usually, this type of fraud includes a car accident, injury, arson, or theft. Here, the frauds try to scam the insurance company out of money. Some common examples of hard fraud are – 

1. Fake auto accidents: Many drivers staged auto accidents to force another driver into a collision and tell police the victim is at fault.   

2. Planned vehicle theft: Some car owners have partners who steal their car and sell, destroy or strip it for parts and then file a claim with an insurance company.

Common Car Insurance Scams And How To Avoid Them

While driving vehicles, most people try to remain safe on the road but there are some other drivers who try to use their cars to stage false accidents to get insurance payouts. Below are 10 common insurance scams. Let’s check them out!

1. Staged Accidents

Many drivers set up fake accidents alone or with other people. Some common examples of staged accidents are rear-ended collisions, parking lot accidents, left turn yield collisions, etc. Usually, this type of accident happens in no-fault states like Michigan where the insurance company pays for the damage regardless of the fault. So, it becomes easy for the scammers to get a quick settlement from their insurance. Defensive driving is the best way to avoid this type of scam. Or, if any accident happens then submit a detailed claim as soon as possible. Also, try to collect the official report from the police to avoid legal problems.

2. Additional Staged Damage

In this type of incident, drivers who staged fake accidents cause extra damage to their own cars to take more advantage of the accident. So, if there is any accident happens then immediately takes picture of both cars and writes a detailed description of the damage as soon as possible. You can also fill out an accident report right away to avoid additional legal claims.

3. Excessive Mechanic Repairs

There are some fraud mechanics available that perform unnecessary repairs for the cars or use imperfect parts and charge more. Therefore, you might require extra repairs shortly after the previous repair. This way the fraud mechanic takes extra money from customers and insurance companies. Therefore, you should choose the repair shop carefully. You can choose a repair shop that is recommended by others. Or, you can find a repair shop that has high customer ratings.

4. Roadside Service Or Tow Trucks

Sometimes, when you are driving on the road, a tow truck or mechanic might approach you and claim that you might need your glass or bumper repaired. Then the tow truck or serviceman will charge you a higher price than normal or might provide an excessive repair claim to your insurance. Usually, this type of scammer approaches the victim when their car or vehicle is parked on the side of the road. Seeing a roadside tow truck or mechanic might look convenient but it is better to take service from trusted repair shops to avoid scammers.

5. False Medical Claims

Many scammers match up with medical practitioners and then the medical practitioners make false or exaggerated medical claims to make money from the customers and insurance companies. Some activities of this type of scammers are forge bills, charge for unneeded procedures or sue for extra pain and suffering, etc. It is very difficult to avoid this type of false medical claim. However, you can try to collect as much information you can from the accident scene and take pictures to use them as proof to avoid scams.

6. Bait-and-switch Insurance Rates

This type of scam is usually done by insurance companies. When a customer wants to buy new car insurance, the company first offers low introductory rates or one-time discounts to attract the customer. Then the discount expires when the customer renews the policy. In this type of situation, the insurance company balances its low rate with low coverage, high deductibles, or exclusions. So, when you are trying to buy insurance for your company, make sure you compare multiple insurance companies and choose one that’s highly recommended by other customers. This way you can easily avoid insurance scammers.

7. Independent Agent Payment Theft

This is a very serious scam and it can be very costly. Usually, the insurance agents are trustworthy but recently there are some complaints from people about insurance agents stealing premiums for personal payment without setting up an actual policy. When the customers want a claim from the insurance company then they realize that they are the victim of payment theft. So, when buying car insurance, don’t sign up for insurance from someone who calls you. Instead, visit the office physically and sign the contract in front of an authorized person to avoid this scheme.

8. Extra Agent Commission

Some fraud insurance agents slip extra coverage on the policy without informing the insurance buyer. This way the insurance agent gains a larger commission but it will cost the customer more money for unneeded coverage. Therefore, when buying car insurance make sure you verify the policy and check the coverage to avoid extra agent commission.

9. Getting Sold More Coverage

There are some insurance companies and insurance agents available that convince you to buy more car insurance than you need. This is a very common scam because it’s disguised as helpful car insurance coverage. Therefore, when purchasing car insurance make sure you check the coverage and avoid anything that the insurance company is pushing for you.

10. Extended Car Warranties

There are many used car dealers and some insurance companies available that sell extended warranties that continue after a manufacturer’s warranty ends. When you buy this type of extended warranty, you will receive multiple calls from warranty companies pushing you to extend your coverage. So, what you can do is, decline the warranty when buying a used car. Moreover, you should decline suspected spam telemarketers or robocalls and mark the number as spam.

Signs Of Car Insurance Scam

There are some signs of car insurance scams. These signs will alert you from car insurance scammers. The signs are – 

1. Lack of transparency 

2. Asking for sensitive information

3. Lack of documentation

4. Urgency or unusual requests

5. Reckless driving

6. High target driver, etc.

Final Thoughts

Finally, if you become a victim of a car insurance scam then try to remain calm. If there is an accident then take proper medical treatment and then try to call the local authority and tell them you are a victim of a fraudulent accident or fraudulent car insurance activities. Usually, the authority has a fraud team that will help you through the claims process to ensure the best possible outcome for you.

References:

1. https://www.allstate.com/tr/car-insurance/5-types-of-car-insurance-fraud.aspx
2. https://www.moneygeek.com/insurance/auto/resources/protecting-against-fraud/

Last Updated on October 27, 2022 by Magalie D.