When a Little White Lie Leads to Jail Time: What Insurance Fraud Is and How to Avoid It

Ryan Hanley headshot photo. Written by Ryan Hanley
Ryan Hanley headshot photo.
Written by Ryan Hanley

Ryan Hanley is a public speaker, podcaster and author of the Amazon best-seller, “Content Warfare.” Ryan has over 15 years of insurance expertise.

insurance fraud jail time

Most people assume a little white lie is harmless. When you’re filing an insurance claim for damages after a car accident, maybe you include damage to your fender that you know happened long before the accident in question. When you’re filling out an application for home insurance, maybe you conveniently forget to disclose that you have a pool in your backyard. It can’t hurt to fudge the truth a little, right? When it comes to insurance, even a small lie can carry big consequences. In fact, if you are convicted of committing insurance fraud, you could end up paying enormous fines, doing months of community service, or even spending time behind bars. Insurance fraud is no laughing matter, so it’s important to know what it is and how you can avoid it.

What Is Insurance Fraud?

The most basic definition of insurance fraud is deceiving an insurance company in order to receive compensation or other undeserved benefits. This could be a white lie on an insurance application, an exaggerated claim for damages or injuries, or even a claim that is blatantly false.

In most cases, people choose to commit insurance fraud in hopes of gaining some sort of monetary benefit. Maybe you’ve paid your home insurance premiums faithfully year after year, so you feel entitled to some sort of repayment. You submit a false claim for property damage in hopes of receiving some financial benefit from your policy. It might seem harmless, but it could land you a felony conviction and over a year in prison.

Two Types of Insurance Fraud

The American judicial system separates fraudulent cases into two categories: hard fraud and soft fraud. In the case of hard fraud, the perpetrator fakes an injury, theft, or accident in hopes of receiving money from an insurance company.

For instance, Joe loses his job and the bills start piling up. Desperate for some cash to get him back on his feet, he fakes a robbery. He breaks a window, turns over some tables and smashes some vases in the living room. Then he makes a police report, claiming he was robbed. Joe files an insurance claim, stating that the burglars stole some expensive electronics and antique jewelry. He hopes to receive a nice check for his troubles, but instead he receives a visit from an insurance fraud investigator. Soon, he is facing a felony charge for hard fraud.

Soft fraud is similar to hard fraud, but on a smaller scale. In this case, the perpetrator has a valid insurance claim, but simply exaggerates the actual damages to increase their monetary reward. For instance, Mary is driving to work one day when another vehicle rear-ends her at a stoplight. Even though she wasn’t injured during the accident, she files a claim stating she has subsequent back pain requiring ongoing visits to a chiropractor. While it’s only a partial lie, it is still considered soft fraud and is highly illegal.

The Real Cost of Insurance Fraud

  • Up to $272 billion lost to healthcare fraud and abuse in 2011
  • 10% of annual insurance losses result from fraudulent claims
  • A growing problem with fraudulent claims drives up premiums for everyone

While filing a slightly exaggerated claim might not seem like a big deal, it can actually be very damaging when you consider the number of insurance fraud cases seen across the United States each year. In fact, the US Department of Health and Human Services estimated losses as high as $272 billion in 2011 due to healthcare spending fraud. These losses hurt everyone, forcing insurance companies to raise premiums to cover the growing cost of paying for exaggerated or deliberately falsified claims.

What Is the Penalty for Insurance Fraud?

When a person is caught committing insurance fraud, the penalties can be quite severe. Soft fraud is considered a misdemeanor in most states, but it still carries heavy penalties that include fines, probation, community service, and even jail time. Hard fraud cases are always considered felonies, doing permanent damage to your public record. If convicted of hard fraud, a perpetrator can be sentenced to more than a year in prison, major fines, and restitution payable to the insurance provider. Oftentimes, fraud cases develop into criminal trials, uncovering multiple levels of criminal activity that can carry serious legal ramifications.

How Do You Report Insurance Fraud?

If you suspect someone has committed insurance fraud, it’s important to gather as much information as possible before you file a report. You will need the perpetrator’s name, the insurance provider’s name, and the dates when you suspect fraudulent activity took place. The more proof you have, the better your case will be. You can report insurance fraud by contacting any of the following authorities:

  • State bureau for fraud
  • All involved insurance companies
  • State medical board
  • The National Insurance Crime Bureau

Busted. Real World Cases of Insurance Fraud Revealed

Home Insurance Fraud: Indianapolis Man Sentenced to 50 Years Behind Bars

When Mark Leonard realized he would never find a way out of his mounting credit card and gambling debts, he took extreme measures and attempted to stage arson in an effort to receive $300,000 in compensation from the insurance company. He filled his home with natural gas and used a microwave on a timer to spark a fire. However, the explosion was much larger than expected, killing his neighbors instantly and doing damage to at least 80 other homes in the subdivision. By the time it was over, there was more than $5 million of damage. Jurors later convicted Leonard on more than 50 counts, sentencing him to up to 50 years in prison.

Health Insurance Fraud: Doc Faces a Decade in Prison for Unlawfully Billing Insurance

Dr. Aria Sabit thought he had managed to con the system until his empire came crumbling down. Authorities discovered that he was performing unnecessary spinal surgeries and illegally billing insurance companies for the operations. The US Attorney’s Office estimated that Sabit illegally billed insurance providers for $11 million before he was caught. Now the former surgeon is facing a decade in prison, a small price to pay for such a far-reaching crime.

Life Insurance Fraud: Florida Man Sentenced to 10 Years in Prison for Faking His Own Death

Jose Lantigua was sure his get-rich-quick scheme would work out perfectly. He faked his own death, complete with a funeral and cremation paperwork, in an effort to cash in on a $9 million life insurance policy. But authorities soon discovered that Lantigua was actually alive, thanks to a forged passport and a stolen social security number that were tracked to a remote home in the mountains of North Carolina. That’s where they found him hiding, wearing an ill-fitting toupee. Now the man is facing 10 years in prison for his foiled plot to deceive the insurance company.

The Moral of the Story: Don’t Falsify Insurance Claims

While these stories of insurance fraud might seem outrageous, this kind of deception happens every single day. Whether it’s a slight exaggeration or an outright lie, any type of falsehood involving your insurance can carry heavy consequences. Ultimately, it’s just not worth it. If you don’t want to wind up behind bars, make honesty a priority each time you deal with your insurance company.

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