The Typical Insurance Fraud Scenario

By Mark Colbert
Expert Consultant, Life Insurance Company Fraud

Life insurance fraud can happen to anyone.
An Insurance agent can easily misrepresent your policy.
The problem may be hidden in the fine print.
How can you obtain legal justice and compensation?

Consider this:

There are certain people whom you just have to trust.

Please take a minute to read the following scenario I have created for the purpose of illustrating a point. We all watch the news and read the papers, right? In doing so, we see some pretty strange things human beings do to one another. Although the following may never happen to you, what would you do if it did?

You have a family, work hard, enjoy life to its fullest. You and the wife have been married for over twenty years. You both have grown together, faced problems, raised a family. You will retire soon and have worked hard to save for it. You own three different life insurance policies you have purchased over the years, maybe from friends or acquaintances.

These policies have a combined face value of $25,000 and rather large cash values. Two of them have been paid up for years now and the last takes $25.00 out of your checking account every month via automatic withdrawal. These policies are something you count on to help out the wife and kids should you die unexpectedly.

One night an agent calls you on the telephone. He explains that he from the life insurance company you have purchased two of your life insurance policies from, the first bought by your parents when you were just a baby. The agent explains that he needs to meet with you to perform a policy review. Since you have not seen an agent in many years and have been with this particular company all your life, you don't hesitate to make an appointment. Deep down, you actually look forward to making sure that your family's security is well and intact. You know absolutely nothing about life insurance (as much as you do about medicine) and have not even glanced at your policies in many years. Death is a very "touchy" subject and you are glad someone is there to help you plan for it.

During the meeting (like the doctor) the agent examines your policies, listens to your concerns and goals, and takes notes. As a diagnosis, the agent explains that the company has a special offer for people like you, their long-time clients. He explains that the company is willing to increase your insurance coverage to $100,000. This increase will benefit your family substantially in the event of your premature death. Furthermore, this new policy will provide extra money for your retirement.

You like this idea and ask the agent what this new "super policy" will cost. He explains that you can have it for the same $25.00 you are currently paying on your one old policy or maybe nothing at all. This will be done by taking all of the equity or cash value from your old policies and "rolling it over" into the new one. Sure, this new policy may cost a little more but, the company is paying above average interest rates and will use a small part of this interest to make up for what you are not paying. You and the wife love the idea and give him your approval to continue.

At this time, he completes the application for you, has you sign a few blank forms (in the interest of time he will complete them back at the office) and congratulates you on a well-made decision.

As he thanks you, shakes your hand and leaves, you are relieved to know you are with a top-notch company, and one of their representatives has really "taken care of you".

You may have a medical technician drop by the house, take some blood, a urine sample, and ask a few questions. A few weeks later, your policy arrives in the mail with a letter from the agent explaining why he could not personally deliver it to you.

You may open the policy and glance at the cover page briefly. The words and phrases all look Greek to you so, you close the cover and put the policy in the bottom of your sock drawer. As you close the drawer, your concerns about leaving your wife and family "broke and in trouble" close with it.

Years have passed and you have long since retired. You have three grandchildren who mean the whole world to you. You have upgraded your home, purchased a new car and a set of golf clubs. You are on a fixed income now but, are managing as best you can. Your blood pressure and cholesterol levels have increased a bit and you take medication for it. You wish that social security would pay a little more to supplement your mediocre retirement check. The wife is getting a little bit from social security as well and together you are saving for Christmas.

Every year you get statement from your "top-notch" company. These statements are foreign to you and nearly impossible to read. Occasionally, you have just glanced at them before filing them away in a box. You are not concerned as you have had the same insurance company for over thirty years. What is there to worry about?

One day, the company sends you a different type of letter in the mail. Because you have not heard from your agent or the company in ten or eleven years, you open it with curiosity. As you begin to read the letter, a feeling comes over you that no words can explain. The letter explains that your life insurance policy will soon lapse without any value whatsoever if you don't increase your $300.00 annual premium to $3000.00 right away.

Realizing that paying this amount would be impossible, you dig out the phone book and call your agent, only to find out he has left the company years ago or has been promoted to an executive level. You have so many questions going through your mind, your blood pressure starts to rise.

Frantically, you telephone the company, only to be put on hold for nearly an hour before then being passed from one person to another. Finally, a company representative apologizes but, can do nothing to help you. You are confused a few days later when a home office representative calls you to inquire about your "misunderstanding". You explain the problem as best you can and the rep. tells you they will be in touch.

That next week, you get another letter from the company explaining that you should have not been surprised by the news of your policy's predicament. The company will tell you that they have sent the news of your problem every year in the form of a annual statement (which you could not read). They will tell you that you had ten days to examine the policy (you could not understand) and return it if there was a problem. How were you to know if there was a problem? What do you know about life insurance? The insurance company will state that they are not bound by what their agent has told you; only the actual policy is official.

The company will twist the circumstances around and try to make you believe it was all your fault. They will call their agent a "superstar" and try to make you feel stupid. Other agents will call, trying to sell you yet another policy. You may call the State Department of Insurance only to spend hours on hold. If you knew who to talk to, you might find that your State's Insurance Commissioner was in the pocket of the insurance companies and had forbade any investigations into the company. The bills and requests for money are coming every few days now from the company. You may call an attorney who knows as much about life insurance as you do. He will want a huge retainer before he will even look into the problem and cannot guarantee an outcome.

Because of your fixed income and health situation, you cannot afford another policy. Nor can you afford to lose the thousands of dollars put into your policy. You are afraid of leaving your loving wife without anything when you die. You do not believe that your kids, who have their own lives, should bear the responsibility of your final expenses.

The insurance company is now keeping both your money and your family's future security and they do not return your phone calls.

What will you do?

This scenario has happened to literally millions of people and may still be happening every day. A lawsuit was filed in New Jersey in 1994 by Charles Kavitsky, The Officer In Charge of Metropolitan Life's Mideastern Territory. This man was responsible for personal insurance operations in New Jersey and eight other eastern states and supervised over 3,300 employees. He charged Robert Crimmins, the Executive Vice President of Metropolitan Life with "eliminating incentives that minimized deceptive and fraudulent sales practices by Metlife's sales representatives and managers." He stated that, "the reason was to increase Metlife's sales and profits".

There is an ironic part to this law suit. I have been told by a former Metlife executive that Kavitsky was a huge part of the problem. Kavitsky had been caught with his hand in the cookie jar and filed the suit in retribution.

Prudential is currently in the midst of settling one of the largest class action law suit in the history of the life insurance industry. Nationally, there are potentially 10.7 million victims of life insurance fraud.

My point being: There does not seem to be a checks and balances system within the nation's two largest insurance companies. If the rest of the industry cannot be judged by the two largest, most respected companies, by what should it then be judged? If you cannot trust Snoopy and The Rock, who can you trust?

Life insurance agents do not have to attend years of school and be bound by a code of ethics. I investigated a former Metlife agent who left the company to work for Allstate. Prior to being in the top 10% of all life insurance agents, he was a guitar player in a rock and roll band and had a documented drug problem. Having more than 90 separate law suits against him, and over 1100 more of his cases are under investigation, Allstate consistently paid him a six figure paycheck every year. After a hearing by the California State Department of Insurance and Office of the Attorney General, his State Insurance License was permanently revoked.

Recently, in an interview with ABC television, I stated that if all life insurance agents could be judged with the entire industry being 100%, 40% of those agents would steal your last dime and not lose a minute of sleep. 59% of the agents left are loyal, ethical, honest, caring professionals who would not harm anyone in any way, shape, or form. Unfortunately, if these agents are presented with a case of fraud, misrepresentation, or deceit against theirs or any other insurance company, they will turn their head and do nothing about it. They take no personal interest in these situations and delegate their fiduciary responsibility to lawyers, State Dept. of Insurance investigators or the companies themselves.

What about the final 1%? This is the group with names like Richard Sabo, Crosby Engel, Jim Butler, Joe Wade, Wayne Francis, Mike Weaver, and myself. We are the ones who are standing up to dishonest companies and screaming, "Stop it, you can't do this to people". We bring cases out in the open, bring in media attention, give thousands of cases to attorneys, assist with class action law suits, and help people understand their life insurance policies.

Of course there are bad points to being in this group. Death threats are one that jumps up at me. Another is that, there are so many problem cases out there, we could work 16 hours a day, 7 days a week and not gain an inch on the problem. With Insurance Commissioners allegedly taking pay-offs and the powerful lobby of the insurance companies, there are not enough honest people out there to police the bad agents.

If anyone ever asks me about my job security, I tell them, "As long as there's a dishonest life insurance agent, I have a job".

Copyright © 2005 by FBIC (

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