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LIFE Insurance

Secret life insurance policies are rare, but this type of insurance fraud does happen. Protect yourself by following the measures mentioned in this guide.

Life Insurance

Secret life insurance policies are a common plot point on TV and in movies. But could you have a life insurance policy and not know it?

About 60% of Americans have some form of life insurance. Most of them likely either went online or an insurance agent helped them find a policy that fit their coverage needs.

However, there are instances when someone can fraudulently take out life insurance in your name. These cases are rare, but insurance fraud does occur.

Here's what you need to know to prevent this from happening to you.

  • It's possible that someone can secretly take out a life insurance policy in your name. However, it is rare and not that easy.
  • You don't have any rights to cancel the life insurance policy taken in your name. Only the person who owns the policy can drop it.
  • To find out if someone has taken out an insurance policy on you, go through your personal documents for life insurance coverage or contact your state insurance department.
  • Work with the insurance company to resolve the issue, if you come to know that someone has taken out a life insurance policy on you.

Can someone secretly take out a life insurance policy on you?

It's possible. There are protections in place during the life insurance application process that make this more difficult though.

Most insurance companies require:

  • A medical exam
  • Your medical information
  • Your consent in the form of your signature

"Although secret life insurance policies are not common, they are possible. Most life insurance policies require a medical exam; some only require a signature of the person to be insured. Such policies can be taken out illegally by someone forging a signature and not informing the person who is the subject of the insurance policy," says attorney Ryan Stump, of Randall & Stump, PLLC, which frequently represents clients facing insurance fraud and other fraud or criminal charges related to life insurance.

Insurable interest is another safeguard that reduces the potential risk of a secret life insurance policy. Someone can take out life insurance on you if they will suffer a significant financial loss if you die. In this case, a spouse, a close family member or even a business partner may have an "insurable interest" in you and be able to insure you lawfully.

Can you cancel a life insurance policy someone has on you? 

The person who took out the policy owns it. The person whose life is insured doesn’t have any right on the policy, so you can’t cancel it. 

However, you may see if the person will transfer ownership to you. This might happen if your parents took out a life insurance policy on you when you were a child.

Can you get life insurance on a spouse?

If you have insurable interest, you can take out a life insurance policy on your spouse. In other words, if a person's death would cause you a significant financial harship, it's an insurable interest. 

It’s a good idea to get the spouse’s OK and go through the normal life insurance process of having the spouse get a policy and name you as a beneficiary. 

How do I find out if someone has taken out life insurance in my name?

Stump says you can do several things to find out if someone has a fraudulent policy on you, including:

  • Pay attention to marketing or educational materials in the mail from an insurer with whom you haven't signed up for coverage. The insurance company may send you mailings to sell additional services. There may be a fraudulent policy in your name if there's a reference number on any of these materials.
  • Check your bank account for regular payments to a life insurance company. Payments to the insurer may appear in your account if a family member perpetuates this crime or you're the victim of identity theft.
  • Look through your personal documents for life insurance coverage. If your spouse was offered group life insurance through his or her employer, for example, it's possible he or she could have insured you without you knowing. If you're soon-to-be separated or divorced, it's likely the policy is still intact. It's also possible your parents could have a policy in your name without you knowing. They may have received a policy when you were a minor and kept it once you reached adulthood.
  • Contact your state insurance department and ask them if your state has a special fraud bureau that investigates insurance fraud. You can call your state insurance department to register a complaint if you suspect fraud.

Also, check the Medical Information Bureau's (MIB) website to find out if there's a secret life insurance policy in your name. MIB houses files on consumers who have applied individually for life or health insurance in the last seven years.

If you see the name of an insurance company you don't recognize, follow up to find out whether you're insured with them. Your best and first line of defense is to work with the insurance company to resolve the issue. If they're uncooperative, contact the police and your state insurance department.

Insurance fraud is a serious crime. Stump says someone who obtains an illegal life insurance policy could face jail, probation or a significant fine.

"Depending on the depth of information that the perpetrator provided, they could also be on the hook for identity theft, wire fraud, or mail fraud," he says. "If the action involves people in different states or transactions across state lines, it could even be a federal offense. This would result in time in federal prison and additional fines."

Secret life insurance policies are rare, but this type of insurance fraud does happen. Protect yourself by following the steps we've outlined to minimize the likelihood that someone garners a big insurance payout at your expense.

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