List: 5 Deceptive and Illegal Life Insurance Practices

Life insurance is can help your loved ones cover your funeral expenses and help give financial support in the case of your death. If any of your loved ones depend on you for income, your life insurance will help them get by. With the financial welfare of your loved ones on the line, you need to carefully consider which life insurance policy is right for you. Unfortunately, while most life insurance providers are legitimate, there are a few insurance providers who are disingenuous and use deceptive or illegal tactics to conceal the true nature of their products. They put their short-term profit over your loved ones' long-term welfare. Some of the common fraudulent life insurance sales practices are listed below.


One of the most common deceptive life insurance sales tactics is misrepresentation. This may include any false or misleading information about the policy's terms, conditions, extent of insurance coverage, nature of the policy and amount of interest payable to the insured. The term also covers any false information about other insurance companies that the insurance company may use in order to persuade you to switch policies. Misrepresentation is illegal under both federal and state law. The best way to detect misrepresentation is to carefully look at the contract before signing it and check every paragraph. The contract should contain the real terms - otherwise, the insurance company cannot legally enforce them.


"Churning" occurs when an insurance agent tries to persuade you to replace or healthily modify your current life insurance policy with a new one. While that may not be entirely untrue, the new insurance will inevitably have bigger premiums and other fees. That is because, when you reapply, you are treated as a new policy holder, and you are judged based on your current age and health rather than your age and health at the time of your original policy.

Vanishing Premiums

A variant of churning, this involves insurance agents using graphs and charts to convince you to "roll over" cash value from your existing policy into a new policy. This would supposedly allow you to avoid paying premiums, since the rolled over cash will cover them. While it's possible to achieve this on the short term, it never lasts more than a few years. The interest rates will inevitably change and the rolled-over cash will run out, leaving you paying even bigger premiums then before. If the insurance agent doesn't mention this, they are breaking state and federal law.

Built-in Insurance

The term refers to situations where credit lenders who require you to purchase life insurance (usually from an affiliated insurance provider) before you can take out one of their loans. In some cases, life insurance is built directly into the loan contracts, usually as premium payments that are included into your loan payments.

Low Face Value Life Insurance

The term refers to any policies where benefits are less than a multiple of premiums. Such policy asks you to pay more then it will ever be worth. Unfortunately, the practice isn't illegal in every state, so you should consult your state's attorney general before you report this practice to authorities.

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