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Fraud Costs Everyone
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Wrecking a car and lying about it or staging an accident to get a payout are crimes that can cost a perpetrator dearly. Similarly, any inaccuracies reported (about a child's GPA, ZIP code where a car is garaged, etc.) for financial gain is also technically fraud.

This type of "soft fraud" is far more common than hard fraud -- and is much harder for the industry to deal with because it's so difficult to detect. Consider "claims padding," such as urging a body shop to fix dents that never happened after a car accident or claiming more serious pain or injuries than actually suffered.

Although perpetrators might think of these as victimless crimes, everyone with an Auto policy pays for them in higher rates needed to offset the cost of phony claims.

Here are a few common examples of soft fraud, as described by Allstate and the auto buying and research site, CarsDirect.com:

  • Grade faking: A parent or student lies about high grades to get a good-student discount.
  • Location lies: A policyholder tries to get a premium cut by using a parent's address in a rural, less-traveled area to register and insure a car that's usually driven in a more accident-prone city. He also tells his insurer that he drives half the miles that he really does.
  • Missing drivers: A family fails to inform their insurance company that there are two teen drivers in the household, not just mom and dad.

Soft fraud is usually treated as a misdemeanor. Depending on the seriousness of the offense, it could cost the scammer a fine of up to $15,000, jail or prison time, and probation -- not to mention the humiliation of going through the legal system.

 
Gordon O’Neill
Other articles by: Gordon O’Neill
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