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. 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, penalties for hard fraud tend to be more severe.
Examples of car insurance fraud
- Providing a false address: Your auto 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 the address your vehicle gets parked at 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 vehicle gets stolen and is not recovered, the insurance company considers the car 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.
What is the penalty for car insurance fraud?
A misdemeanor conviction for auto insurance fraud may result in a fine and probation. In some cases, a misdemeanor conviction can result in a prison sentence. Felony conviction penalties vary by state but may result in jail 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.
Be completely honest in your car insurance applications and claims.