Scenarios of Life Insurance Fraud

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

by Mark. J. Colbert, Owner of Mark J. Colbert Enterprises

There are people that you just have to trust.

Take a minute to read the following scenarios 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?

Scenario #1

You are running a fever, have an upset stomach and just ache all over. It could have been that late night dinner, the upcoming meeting at work, stress, kids, or any number of things. Thinking that you'll feel better after getting up, you roll out of bed and head for the shower. As the hot water runs down off of your head and shoulders, you realize that you are in no condition to drive to work or, for that matter, do anything productive, and you decide to call in sick. Your condition worsens and you really begin to feel terrible. Still hanging on to the hope that it's only a 24-hour bug, you rest and drink plenty of fluids. The next morning, you have not gotten any better and decide to make an emergency appointment with a physician you've never met. During this appointment, the doctor listens to your complaints, conducts a thorough examination, runs tests, takes notes, makes a diagnosis, and prescribes medication. You leave the doctor's office without even looking at the prescription, or consulting your long-time family doctor for a second opinion. Like anyone else who's feeling a bit under the weather, you go straight to the pharmacy, hand the attendant your prescription, and sit down to wait.

Little did you know that the night before, the good doctor had literally “gone off the deep end.” He had been having serious marital troubles for quite some time and was finally told that he was losing everything. Distraught and on the verge of a nervous breakdown, he was incapable of focusing on what was important to him, and more importantly, to you. Determined that life was just not sacred anymore, he was going out in a blaze of glory.

As you sat there waiting for your order to be filled, how could you possibly have known that the doctor you trusted with your life had given you a prescription for a pill that would react very violently with your system. If taken as prescribed, your life will painfully end in a matter of hours.

After twenty minutes, your order is filled and the pharmacist advises you not to take the medication on an empty stomach. Unfortunately, the pharmacist does not know your particular case and what the doctor has done. Just as anyone else would; you go home, open the bottle, wash down a pill with a glass of water, and go back to bed.

Where would you be if this happened? You, like the rest of us, are not stupid. We have the ability to visit the public library's medical section or research the effects of the medication on the Internet. However, when we are sick, nothing is more important than getting well and back on our feet. Therefore, we do not hesitate to put our lives, and our trust, in the hands of those medical professionals dedicated to doing what is right for us.

After hearing of your violet death, the doctor has a change of heart and decides he is not ready for death row. In a hearing before the A.M.A., the doctor concedes that he may have made a mistake. While never admitting to the truth, he medically suggests that your system responded differently than he anticipated. His malpractice insurance will pay your wife and children a small amount, but certainly not enough to replace your human life value or your future potential earnings.

After some time has passed, the A.M.A. drops the case and puts the doctor back to work with just a slap on the hand. He is again free to practice medicine and his “little secret”is forever safe.

Scenario #1 might seem a bit preposterous. I'm sure the chances of a doctor "going off the deep end" are quite slim. In medicine, there is a system of checks and balances that doctors and pharmacists must follow very closely. Before ever being allowed to treat a patient, physicians must attend many years of school and closely follow the codes of ethics and other guidelines set by the A.M.A.

Parts of the Doctor's Oath of Hippocrates state: “I will follow that system of regimen which, according to my ability and judgment, I consider for the benefit of my patients, and abstain from whatever is deleterious and mischievous. I will give no deadly medicine to any one if asked, nor suggest any such counsel. With purity and with holiness I will pass my life and practice my Art. Into whatever houses I enter, I will go into them for the benefit of the sick, and will abstain from every voluntary act of mischief and corruption.”

Scenario #2

You have worked hard your whole life. You've been married for over twenty years, spent quality time with the family and enjoyed life to its fullest. You've raised a family, grown together, faced problems and celebrated life. You will retire soon and have worked hard to save for it. Over the years, you have purchased three different life insurance policies from agents you consider your friends.

These policies have a combined face value of $50,000 and rather large cash values. Two of them have been totally paid up for years and the last one 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 policies from, the first taken out by your parents when you were just a child. The agent explains that he needs to meet with you to conduct an official policy review. Since you have not seen an agent in many years and have been with this company all your life, you don't hesitate to schedule a meeting with the guy. Deep down, you are relieved and 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 sensitive 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. The agent explains that the company has a special offer for people like you, their long-time clients. He explains that his company is willing to increase your insurance coverage to $100,000 for no extra money out of pocket. This increase, he explains, will benefit your family substantially in the event of your untimely 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. The agent explains that you can have it for the same $25.00 you are currently paying for your old policy. 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. Your new policy will begin with a huge cash value that earns an above-average rate of interest. Since, the policy may cost just a little more, the company will automatically apply a small part of this interest to make up the difference. The agent claims that everyone is doing it and that is the way the financial industry is evolving. After just a bit of discussion, you and the wife love the idea and give the agent 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 that your insurance company is an industry leader and happy that one of their representatives has really "taken care of you".

A few days later, a medical technician drops by the house, takes blood and urine samples, and asks a few questions. A few weeks later, your policy arrives in the mail with a card and a letter from the agent explaining why he could not personally deliver it to you. He will be in touch very soon, he writes, and again congratulates you on making a great decision.

Only very briefly, you open the envelope and glance at the policy’s cover page. You notice the company name and $100,000 Face Value written on the policy’s data page. Since the rest of the words and terminology all looks Greek to you, you close the envelope 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 pretty well. Your blood pressure and cholesterol levels have increased a bit and you take medication for it. You do odd jobs around the neighborhood for spare cash and 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, just like clock-work, you get statement from your "industry-leading" insurance company. These statements are foreign to you and nearly impossible to understand. Occasionally, you'll just glance at one before filing it away in a drawer. You are not concerned because you have had the same insurance company for over thirty years. What is there to worry about?

One day, the insurance company sends you a different type of letter in the mail. Because you have not heard from your agent or the company in quite some time, you curiously open it. As you begin to read the letter, a feeling comes over you that mere words cannot explain. The letter explains that if you don't increase your $300.00 annual premium to $3000.00 right away, your life insurance policy will soon lapse without any value whatsoever.

Your mouth turns dry as you realize that paying this amount would be impossible. After sitting for a moment, staring out at the kids in the front yard, you notice your hands shaking as you dig out the phone book to call your agent. After being placed on hold for what seems an eternity, you're told that he’s unavailable. Since being promoted to an executive level, he is rarely in the office and very difficult to reach. If you'll leave your name and number, you’re told he'll call you right back when he has a chance. As you hang up the phone, so many questions go through your mind and your blood pressure starts to rise.

A week later, you telephone the company again, only to be put on hold for nearly an hour before being passed from one person to another. Finally, a customer service representative apologizes but, can do nothing to help you. A few days later, a home office representative calls to inquire about your "misunderstanding". After explaining the problem as best you can, the customer service specialist assures you they will be in touch very soon.

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 status. The company informs you that they have sent your policy information every year in the form of an annual statement (which you could not understand). They tell you that after receiving the policy in the mail, you had 10 days to examine it fully and you had the option to return it if there was a problem. You ask yourself, what do I know about life insurance? How could I have known anything about a potential problem with my policy? The insurance company officially states that they are not bound by what their agent told you at the time of sale; only the information contained in the actual policy is official.

The company will twist the circumstances around and try to make you believe it was your fault for not understanding the contract. They refer to their agent as a "superstar" and try to make you feel stupid. Other agents call and try to sell you yet another policy. You even call your state’s Department of Insurance consumer hot-line, only to spend hours on hold. The notices and demands for money are coming every few days now from the company. You call an attorney who claims to know a little about life insurance. After you send him a large retainer, he will agree to look into your case. He cannot, however, guarantee anything.

Because of your fixed income and poor health, you cannot afford another policy. Nor can you afford to lose the tens of thousands of dollars you’ve invested in your policy. You are afraid of leaving your wife and family 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. It seems as though the insurance company is keeping both your money and your family's future security, and they won’t even return your phone calls. What will you do?

Scenario #2 has happened to literally millions of people and is still happening every day. Lawsuits settled in recent years have charged insurance company executives with eliminating incentives that minimized deceptive and fraudulent sales practices by sales representatives and managers. The reason, they state, is to increase their company's sales and profits. Several of the world's largest insurance companies have settled suits charging them with fraudulent acts, deception, breach of contract, breach of fiduciary duty, and a host of other violations. These cases, which settled for several $ Billion, involved more than 40 million policy holders.

Life Insurance Professionals are not required to take an oath promising to always act in the consumer's best interest. In fact, while they were busy vacationing in the Bahamas, one of the largest life insurance companies in the world, produced a video of its agents singing a catchy tune entitled “I'm on a mission to raise my commission.”

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

Life insurance agents are not required to attend years of college and/or be bound to a code of ethics. I once investigated an agent who would regularly bounce from one company to another. Prior to being in the top 10% of all life insurance agents in the country, he played lead guitar in a neighborhood rock and roll band and had a documented drug problem. Even though this guy was involved in over 90 separate fraud cases at one time, the insurance company continued to pay him six figures 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.

A few years ago, I was asked to speak at an insurance fraud seminar in southern California. As the guest speaker, I knew that my spot would probably end the program and by that time, people would already have one foot out the door. Therefore, I was tasked with coming up with something that would keep them glued to their seats until my presentation ended. As I roamed around the office practicing my speech, I thought about the different types of people that would be in my audience. There would undoubtedly be agents, brokers; agency, branch, and district managers; underwriters, actuaries, and maybe even a few SIU (Special Investigations Unit) personnel. I decided that I would challenge the audience to a game of ethical chess.

After I was introduced, I stood at the podium in front of roughly 120 people and proceeded through most all of my presentation. As I neared the end, I decided I would make the first move.

Here's the situation, I began. You are meeting with some prospects for the very first time. They are both in their mid-40s, in good health, and nonsmokers. They've come to you to discuss a possible upgrade to their life insurance portfolio. It seems that someone they trust spoke very highly of you and they know you will do your very best to provide both knowledgeable and professional service.

You thank them for inviting you to their home and speak warmly about the mutual friend that referred you. After a little small-talk, you ask them about any current policies they have. The wife smiles and hands you a folder containing a regular universal life policy issued just 6 years prior. “We don't want to do anything to this policy,” she explains, “it was sold to us by my brother-in-law, and it will be paid-up next year. We'd just like to get another policy to supplement it, and we know that you're the guy to help us.” Because you are an experienced agent, the skyrockets in the back of your mind begin shooting skyward. “Paid up in only 7 years?” you ask. “Yes,” they reply. “Since the company our brother works for pays above-average interest rates on their life insurance policies, we'll be done paying for this one next year.” “Then, we can devote the $125 per month we currently spend on this policy to the one we plan on buying from you.” “So, sometime next year,” you confirm, “this policy that covers you (the husband is the primary insured) for $100,000 and you (the wife has a term rider) for $100,000 will not require any further premium payments – forever?” “Yes,” the wife replies, “we were very lucky to have gotten such a great deal on this policy.” “Why didn't you go back to your brother-in-law for the new policy as well?” you ask. The husband states that because his brother did so well in the company's sales division, he was promoted to an upper-management position in the company's home office. “Oh, by the way,” the wife adds, “will the policy that you're going to show us also pay-up in 7 or 8 years?”

You could have heard a pin drop in the room when I re-addressed the audience. That's your situation, ladies and gentlemen; if these were your potential clients, what would you do?

The very first voice I heard commented, “The policy is not that big, I'd just leave and let someone else worry about it.” Following that, there was quite a bit of conversation in the room. “I would tell them that they need to pay more money,” one person said. “There's no way a policy like that will be paid off in only 7 or 8 years,” said another. A young lady near the front of the room asked, “Should I have them call someone at the Department of Insurance?” Several people mentioned that they would tell them the truth then replace the policy with a new plan. “I'd have them call a lawyer,” and older man stated. I vaguely heard someone further back exclaim, “Yes, but the brother-in-law is going to be pissed.”

I had presented the class with a clear case of something called, Vanishing Premium Fraud. In cases like this, the agent wins, the company wins, and the policy holders typically lose both their policies and all the accrued equity in just a few years. No matter which group they fall into, the agents in the room know it is illegal to sell life insurance this way. This type of sale is unethical, immoral, and would be a horrible thing to do a member of your own family.

After a few minutes, I stepped back up to the microphone. “Ladies and gentlemen, can I have your attention for a moment?” I asked. “You could have them call their brother, a lawyer, the department of insurance, or the insurance company; we all know it probably wouldn't do them any good whatsoever. My question was, what would you personally do for them?” “If you are going to prove that you have their best interest in mind and potentially earn their future business,” I continued, “you need to step up to the plate and do something to help them.”

With that, all of the wildly-spinning wheels in the room suddenly came to a screeching halt. At that very moment, there was more tension in the room than there had been at any other time that day. “In an interview I once did with ABC television,” I began, “I stated that if all life insurance agents could be judged simultaneously, 40% of those agents would steal your last dime and not lose a minute of sleep. 59% of those left would be the most loyal, ethical, honest, caring professionals to ever bless your kitchen table with a briefcase. Unfortunately, if the members of this second group are presented with a case of fraud or misrepresentation, they will turn their heads and do nothing about it. They take no personal interest in these situations and merely pass their fiduciary responsibility along to lawyers, dept. of insurance investigators, or back to the insurance companies.”

At that point everyone turned to look at a thin man over on the left side of the room that raised his hand with a question. “Do you have a question sir?” I asked. “Yes,” he said, “that's only 99%.” “I beg your pardon?” I said, as if I had no idea what he was talking about. “A minute ago you said that 40% of all life insurance agents would rip you off and the other 59% wouldn't do anything about it. That's only 99%. What happened to the other 1%?” With a broad smile, I chuckled and was delighted that someone had paid attention. “That's where I'd like to see every single one of you conduct business from now on,” I remarked, “In the 1% of those who'll make a difference to the rest of the industry. Don't just replace policies and let the bad agents off the hook, take a stand for your clients and show them you're on their side.”

After the ovation I said, “In closing, if anyone ever asks about my job security, I tell them that as long as there are dishonest life insurance agents, I have a job to do. Thank you for coming out and have a safe trip home."

If you'd like more information or have any questions, please contact us by e-mail at mark@markcolbert.com or complete our contact us form.

Mark J. Colbert Enterprises
Insurance Services
California Insurance License #0809888
Life Insurance Fraud Investigations / Consulting Services / Expert Witness
1328 Fairway Drive
Atwater, CA 95301
(209) 357-3423 Office
(209) 357-3387 Fax
Web Site: www.markcolbert.com