Insurance fraud occurs when an individual deceives an insurer to obtain an improper financial benefit. This deception can occur through the making of statements. An example of this is when an individual files a claim for damage to a car that was in an accident, and overestimates the amount of damage to improperly obtain insurance proceeds. 

The deception can also occur through acts. An example is the setting of one’s store on fire to recover insurance proceeds. Insurance fraud is a crime. The penalty for committing insurance fraud can include fines and jail time, and generally depends on how severe the fraud is.

What Kinds of Insurance Can be Purchased?

To understand the concept of insurance fraud, it is useful to understand the concept of insurance, why people purchase insurance, and how insurance works. Individuals purchase insurance to be indemnified (compensated) for harm or loss. The insurance is purchased from an insurance company (insurance carrier or insurer). 

The individual agrees to pay the insurance company a specific amount (typically on a monthly, quarterly, or yearly basis) in exchange for the insurer’s agreeing to compensate that individual for the harm or loss.

Common types of insurance include accident insurance as well as health insurance. Accident insurance can be purchased for events that bring harm or financial loss. Such events include auto accidents, house fires, and damage to property due to natural disaster.  

Health insurance can be purchased for unexpected events, such as the development of cancer. Health insurance can also be purchased for services an individual knows they will use. These services include routine checkups, annual physicals, and other preventive care.

What are Specific Instances of Insurance Fraud?

Insurance fraud is the exaggeration, under-reporting, or falsifying of material (important) information about a claimed loss, to obtain an improper financial benefit. Deliberate omission of  information that the insurer requires can be considered insurance fraud.

Insurance fraud committed by making false statements or omissions, occurs with the following types of events:

  • Automobile Accidents: Individuals can exaggerate the amount of damage to a vehicle, or the extent of an injury sustained during an auto accident; 
  • Health Care: An individual can exaggerate the extent of their injuries or medical condition to improperly obtain health care benefits; or
  • Workers’ Compensation: An employee can exaggerate the extent or the severity of an on-the-job injury, to obtain workers’ compensation medical or monetary benefits to which they are not entitled.

Insurance fraud may consist of acts as well as statements. Insurance fraud that consists of acts includes:

  • Arson: Arson is the intentional burning of one’s home or office, destroying or charring it in the process. The individual who commits the arson then submits a claim to the insurer describing the act of arson as an “accident,” for the purpose of collecting insurance proceeds. An individual who commits arson to collect insurance proceeds may be convicted both of insurance fraud and arson.
  • Staging one’s own injury or death: An individual can stage an injury or even their own death to obtain insurance proceeds. Such acts occur when an individual plans and then stages an event, such as an auto or other kind of accident, that serves as the basis for the “injury” or “death” claim.

How is Insurance Fraud Investigated?

Insurance fraud is frequently committed and has a significant impact on the nation’s economy. When an insurer is defrauded, the insurer generally seeks to recover the fraudulently obtained money by “passing on” the costs to its customers or insureds. The costs are typically passed on by charging customers higher premiums or other costs.  

Because of the high frequency of insurance fraud occurs and its economic impact, most states have established fraud bureaus or departments. These departments are dedicated to fraud detection and investigation. Many of these entities are law enforcement agencies that can refer suspected incidents of fraud for prosecution.

How is Insurance Fraud Prosecuted?


Generally, two types of insurance fraud are prosecuted:

  • Soft fraud: Soft fraud occurs when a person makes a false or misleading statement, or material omission, to improperly obtain a financial benefit. Soft fraud is usually considered a misdemeanor. Penalties for soft fraud include fines, jail time, community service, and probation; and
  • Hard fraud: Hard fraud is the deliberate fabrication of a loss, to obtain insurance payments. Types of hard fraud include staging a car accident or staging an act of arson. Hard fraud is a felony that is punishable by substantial fines, as well as jail time of a year or more.

Do I Need an Insurance Fraud Attorney for Help with Insurance Fraud Charges?

 If you are facing insurance fraud charges, you may wish to consult with a criminal defense lawyer. An experienced criminal defense lawyer near you can assess the facts and circumstances of your case. The lawyer can also advise you of your rights and can represent you at trial.