Life Insurance Wagering Contracts And Identity Fraud: A Deadly Combination
How Perpetrators Penetrate Insurance Companies and How to Defeat Them
Overview
Life wagering contracts are nothing new – they have been around since the advent of life insurance. While illegal, wagering contracts represent an extremely lucrative way to earn a profit with a relatively small investment and minimal risk of negative consequences even if caught. A small investment can result in millions of dollars in profit, so it is easy to understand the sentiment of “Why rob a bank when one can defraud an insurance company?” Coupling wagering contracts with identity fraud can yield even higher returns for the schemers. In this paper, we:
– define wagering contracts,
– discuss the types of schemes employing these contracts,
– examine how fraudsters perpetrate these acts at time of underwriting and claim,
– provide mitigants to prevent the fraud, and
– discuss the legal remedies after a policy is issued.
Wagering Contracts Defined
Life insurance is intended to protect the beneficiaries from a financial loss should the insured die unexpectedly. Some of the key elements include an event whose timing is unknown (death) and a beneficiary’s interest in the continued life of the insured. Except for limited situations such as between a minor child and a parent, the insured must be part of the contract application.
In a wagering contract, the policy is purchased solely for the purpose of profit by an investor who has no interest, pecuniary, familial, or otherwise, in the insured’s continued life. In fact, the investor has an interest in the insured’s early death since this would result in less investment spent on premiums and a quicker payout of the death benefit.
The legislative and public policy history against wagering contracts dates back to at least the Eighteenth Century when Great Britain enacted the Life Insurance Act of 1774.2
Prior to this time, insurers in Great Britain were experiencing people purchasing life insurance policies on public figures and others without the insured’s knowledge, hence wagering that the insured would meet an early death. Often, the ones wagering would know more about the insured’s mortality risks than the insurance company – including the risk of being murdered. To prevent the abuse of
wagering contracts, the Act required that beneficiaries of life insurance policies have a financial interest in the insureds’ continued lives.