What is car insurance fraud?

Car insurance fraud is when someone lies about an event to receive an insurance payout (or an increased payout) or a better rate. Insurance fraud can lead to severe penalties and even land the offender in jail. Auto insurance fraud can be as simple as lying about your address or as serious as faking an accident.

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What are the different types of car insurance fraud?

Car insurance fraud can take the form of false claims, lies by omission on applications, and more. It doesn't always look like an obvious crime; even leaving out details to reduce your premium is considered fraud. Auto insurance fraud can be divided into two main types: soft fraud and hard fraud.

Soft car insurance fraud typically refers to exaggerating a claim or an event. Suppose you claim that the dent in your bumper from backing into your mailbox was from a recent hit and run accident. That may seem minor, but it's actually considered a car repair insurance scam. Soft fraud can also refer to leaving out critical details on your auto insurance application.

Hard car insurance fraud is typically a more serious offense involving larger payout amounts, such as faking an accident or abandoning a vehicle and claiming it was stolen. While both types of fraud can result in jail time, punishment for hard fraud tends to be more severe.

Examples of car insurance fraud

Providing a false address: Your car insurance rate is partially based on where your car is usually parked overnight. If you live somewhere with a high rate of auto theft, your premium may be higher. Lying about your address on your car insurance is illegal, even if you're related to or know the people who live at the false address you list.

Abandoning or destroying a car and reporting it as stolen: When a car gets stolen and is not recovered, the insurance company considers the vehicle a total loss and pays out the vehicle's actual cash value. It's a serious crime to report a car as stolen after you've somehow disposed of it, hidden it, or sold it.

Filing multiple claims for one accident: If you're involved in an accident, one claim should be sufficient for all medical expenses and vehicle repairs. It would be considered fraud to try to pass off multiple damage or injury claims as being caused by different car accidents if they actually occurred during one. Plus, because a claim may cause your premium to go up when your auto policy renews, multiple claims could increase your likelihood of a higher insurance price. Learn more about how car accidents impact insurance rates.

Pro tip:

Don't let the fear of committing fraud stop you from filing an auto insurance claim. If you're involved in an accident, don't brush off minor pain. Let your insurance company and health care providers know about injuries, even if they crop up after the fact.

What is the penalty for car insurance fraud?

A misdemeanor conviction for auto insurance fraud may result in a fine and probation, depending on your state. In some cases, a misdemeanor conviction can result in a jail sentence. Felony conviction penalties also vary by state but may result in prison time and significant fines, depending on the circumstances and/or money involved.

How to avoid insurance fraud

When applying for auto insurance or filing a claim, avoid insurance fraud by being completely honest and transparent. Report events exactly as they happened. Include your car's proper address on your application, as well as any driving offenses requested by the insurer. As long as you don't knowingly withhold information or include false information, you likely have nothing to worry about.

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