Car Insurance Fraud Overview: Types and Consequences

Car or auto insurance protects the vehicle when it gets into an accident. In recent years, we have heard cases of car insurance fraud pointing to the fact that some vehicle owners are making inappropriate claims.

But what is a car insurance fraud and why is it tagged a “fraud” in the first instance? In this article, you will discover what car insurance fraud definition is and how to avoid it.

What is Car Insurance Fraud?

To put it simply, car insurance fraud is when someone lies to receive an insurance payout on a vehicle. The person is the policyholder, who in most cases, doubles as the owner of the car.

By lying, the policyholder makes the insurance company believe that the vehicle is due for a claim when it is not.

Car Insurance Fraud Examples

Some examples of car insurance fraud will help you understand how grave this is and why it must be avoided.

First, a policyholder lies that the car got into an accident just to receive the increased payout on the claim.

Second, a policyholder is in a fix on how to pay the car loan. At the same time, the vehicle is accidented and needs to be fixed. Let’s assume that the cost of repairing it is $5,000 but the outstanding car loan is $4,000. The policyholder may decide to get rid of the car by faking a theft so that the insurance company can help pay off the auto loan.

Take scenario three to be a policyholder who allowed someone else to drive his car. In the process, the new driver got into an accident. Instead of telling the story as it happened, the policyholder decided to “take responsibility” and say he was the one driving.

Faking an address also passes for car insurance fraud. In this case, the policyholder gives a different address from where the car is parked. The reason for doing so is mostly to avoid paying higher car insurance rates, as the area or location determines that.

There are also car insurance fraud examples of vehicle owners who make multiple claims for one accident.

There are many other car insurance fraud examples, including policyholders who had an accidented car before purchasing the policy.

What are the Common Types of Car Insurance Fraud?

Want to find out the types of car insurance fraud? Below are some of them:

1.    Hard Auto Insurance Fraud

This type of car insurance fraud refers to a policyholder making premeditated attempts to receive a higher payout. It happens when the policyholder:

  • Liaises with someone to steal, vandalize or sell his car so he could make an auto insurance claim.
  • Faking an accident and planting someone to be a witness of the same.

2.    Soft Auto Insurance Fraud

As the name suggests, this type of car insurance fraud is “soft” because its consequences aren’t as severe as the former.

Soft car insurance fraud typically has to do with a policyholder’s exaggeration of a claim. Examples of the claim include:

  • Inflating the value or cost of the damaged item in your vehicle.
  • Lying about the location where the vehicle is parked. That way, the policyholder makes the insurance company believe that the car is parked in an area that is “safe” when it is not.
  • Intentionally adding previous damage to the new damage on the vehicle.

3.    Auto Insurance Premium Evasion

Some policyholders try to avoid paying higher premiums by avoiding some important information. The information they likely withhold includes:

  • Failing to report all the drivers in the household or the drivers that have access to the car.
  • Not mentioning a minor or young driver in the policy.

4.    Giving up the Vehicle

This type of car insurance fraud is also known as “vehicle dumping.”It has to do with the intentional disposal of the car by the policyholder. The disposal can come in any of the following forms:

  • Burning the vehicle
  • Dumping the car (in the woods)
  • Arranging with a friend or co-driver to “steal” the vehicle.
  • Selling the car and claiming it was stolen.

5.    Faulty Windshield Replacement Car Insurance Fraud

We all know how important a windshield is for a car owner. It helps you clear the windscreen to see clearly when driving in the rain or fog.

However, minimal damage to your windshield could open you up to committing car insurance fraud.

For example, in Florida, you can have someone claiming to be a windshield repair specialist approaching you at a car wash, in a car parking lot, or even at a gas station. The person will claim that your windshield is damaged and needs to be changed urgently.

The trick is that the person would most likely replace your current windshield with a substandard format. With time, the new windshield will begin to wear and tear.

By the time you want to make a claim, your insurance company will discover that it is fake. That could potentially impact your premium and may attract a fine.

How to Avoid Insurance Fraud

Why learn how to commit car insurance fraud when you can learn how to avoid it? Here are expert tips on how to avoid committing car insurance fraud:

1.    Be Transparent with Your Report

Got into an accident? Report it as it happened. Don’t add and don’t remove! That way, the auto insurance company will have a piece of accurate information to help in the investigation.

2.    Keep Your Policy Information to Yourself

Do not make the mistake of disclosing the content of your auto insurance policy, except if you trust the person.

By exposing the information, you could just be opening up loopholes for someone to explore to hurt your chances of making a claim.

3.    Always Insist on Original Parts

Want to fix your car and change some damaged parts? Insist on the original parts and if possible, get an independent investigator to confirm the originality of the parts.

4.    Recognize and Report a Fraud on Time

Understand that some auto repair shops are dishonest and could use non-original parts to replace the damaged ones.

Always report a car insurance fraud if you realize that one is in the offing.

Final Words

Do your best to avoid getting into a situation that can become full-blown car insurance fraud in a short while. The car insurance fraud consequences serving a jail term, paying a heavy fine, and risking paying higher rates on your vehicle insurance.

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