According to the Federal Bureau of Investigation (FBI), insurance fraud costs the United States more than $40 billion every year, excluding healthcare fraud, which adds another $100 billion in losses.

That’s not pocket change. It raises premiums by $400 to $700 for an average U.S. household.

Insurance fraud isn’t only about fake accidents or staged injuries. It includes premium scams, billing schemes, policy misrepresentation, fake medical reports, inflated losses, and identity fraud, among other tactics.

What Is Insurance Fraud?

Insurance fraud happens when a person or organization intentionally deceives an insurance company to obtain money, benefits, or coverage they are not legally entitled to. There are 2 main categories:

1. Hard Fraud (Intentional & Planned Fraud)

Hard fraud happens when someone deliberately creates a loss or invents an event.

Examples include:

• Staging a car accident
• Burning a house for insurance money
• Creating fake medical records
• Filing a claim for property that never existed
• Faking a robbery

2. Soft Fraud (Opportunistic Fraud)

Soft fraud happens when someone exaggerates a real claim or hides information.

Examples include:

• Inflating the value of stolen items
• Claiming old damage as new damage
• Hiding medical history to get cheaper health premiums
• Lying about mileage for auto insurance
• Claiming a higher repair cost than actually paid

According to the National Insurance Crime Bureau (NICB), soft fraud is responsible for 65% of all insurance fraud allegations.

Major Types of Insurance Fraud

Insurance fraud appears in nearly every insurance category. Below are the 9 main types, along with examples to qualify every instance.

1. Auto Insurance Fraud

There are 7 common auto-fraud schemes, such as:

• Staged collisions, including “swoop and squat”
• Exaggerated injuries, like fake whiplash
• Phantom passengers, claimed on injury lists
• Fake repair invoices, inflated by $2,000–$15,000
• Vehicle dumping, where an owner abandons or burns a car
• Mileage misrepresentation, commonly reduced by 5,000–12,000 miles
• False airbag replacements

Auto insurance fraud produces $29 billion in losses yearly (NICB).

2. Health Insurance Fraud

There are 11 major healthcare fraud schemes, such as:

• Billing for non-performed procedures
• Upcoding procedures (e.g., charging for Level-5 ER visits)
• Fake medical equipment claims
• Identity theft to obtain treatment
• Prescription forging
• Kickback schemes between doctors and clinics
• Duplicate billing for the same patient
• Unnecessary surgeries

Healthcare fraud creates $100 billion in losses every year (FBI).

3. Life Insurance Fraud

Common schemes include:

• False death claims
• Faked identity deaths
• Lying on policy applications
• Beneficiary fraud
• Stranger-owned life insurance (STOLI) cases

4. Property Insurance Fraud

Examples include:

• Claiming water damage caused by long-term leaks
• Destroying property intentionally
• Fake burglary claims
• Overstating jewelry or electronics value

5. Workers’ Compensation Fraud

There are 2 primary offender groups:

• Employees faking injuries
• Employers underreporting payroll

Examples:

• Claiming a back injury while playing sports
• Hiding 15–20 workers to reduce premium costs
• Falsifying workplace accident reports

6. Premium Fraud

This occurs when agents or brokers steal premium payments.
Example: An insurance agent collects payments from 100 customers but never forwards them to the insurer.

7. Disaster Fraud

Examples include:

• Filing claims for damage not caused by a storm
• Submitting inflated repair quotes
• Contractors billing for uncompleted work

8. Disability Fraud

Examples:

• Claiming disability while working under the table
• Using fake medical assessments
• Hiding income streams

9. Commercial Insurance Fraud

Businesses may exaggerate losses, misclassify employees, or hide risk factors.

Learn More: Definition of Treason: Laws, Charges & Punishment

How Insurance Fraud Is Classified Legally?

Each state classifies insurance fraud under its own statutes, but the legal elements usually fall into the same structure.

To charge someone with insurance fraud, prosecutors must prove 3 elements:

1. A false statement or misrepresentation was made.
2. The false statement was material (important to the claim).
3. The person acted with intent to defraud.

If intent cannot be proven, the case may be reduced or dismissed.

Federal Laws Used in Insurance Fraud Cases

Insurance fraud becomes a federal crime if it involves such as insurance companies operating across state lines, mail or electronic communication, healthcare programs (Medicare/Medicaid), large-scale fraud operations, and organized fraud rings.

Federal prosecutors use the following statutes:

1. 18 U.S.C. § 1033 — Insurance Fraud & False Statements

Penalty: Up to 10–15 years in federal prison

2. 18 U.S.C. § 1341 — Mail Fraud

Penalty: Up to 20 years in federal prison

3. 18 U.S.C. § 1343 — Wire Fraud

Penalty: Up to 20 years

4. 18 U.S.C. § 1347 — Healthcare Fraud

Penalty: Up to 10 years
(20 years if injury occurs)

5. 18 U.S.C. § 1956 — Money Laundering (if used)

Penalty: Up to 20 years

6. Conspiracy Charges (18 U.S.C. § 371)

Penalty: Up to 5 years, even if fraud isn’t completed

Common Criminal Charges in Insurance Fraud Cases

Insurance fraud often results in multiple charges, not just one.

Here are 8 common charges filed together:

A single insurance fraud case can lead to 50+ years in total exposure if prosecutors stack charges.

Felony vs. Misdemeanor Charges

Misdemeanor Insurance Fraud

Occurs when:

• Loss is under $1,000–$2,500
• No organized plan
• First-time offense
• No violence or threats

Typical Penalty

• 6 months–1 year in jail
• $1,000–$5,000 fine
• Restitution

Felony Insurance Fraud

Occurs when:

• Loss exceeds $2,500–$5,000
• Staged accidents
• Organized groups
• Repeated offenses
• Fake medical reports
• Identity theft involved

Typical Penalty

• 1 to 25 years in prison
• $10,000–$250,000 fines
• Permanent criminal record
• Asset forfeiture

Sentencing Enhancements

Courts impose higher penalties when:

• Fraud involves elderly victims
• Loss exceeds $100,000
• Fraud is related to a natural disaster
• Multiple victims are involved
• Defendant held a professional license

Insurance Fraud Punishment by Claim Type

How to Avoid Insurance Fraud Accusations?

Here are 9 practical ways to stay safe:

1. Keep receipts and documents.
2. Never exaggerate claim values.
3. Be honest on applications.
4. Avoid questionable repair shops or clinics.
5. Get written estimates from multiple vendors.
6. Report accidents accurately.
7. Review every insurance form before signing.
8. Save photos of property before damage occurs.
9. Consult an attorney before giving recorded statements.

Final Thought

Insurance fraud affects far more than insurance companies. It increases premiums for millions of families, creates financial pressure on small businesses, and drains government healthcare programs by billions every year. The penalties—ranging from misdemeanors to multi-decade federal sentences—reflect the seriousness of the offense.

Anyone dealing with insurance claims should remember: Honesty protects you. Exaggeration risks prison.

When insurance claims are handled carefully, documented properly, and reported accurately, the risk of prosecution falls dramatically. Understanding insurance fraud laws helps individuals stay safe, avoid accidental violations, and recognize the severe outcomes tied to fraudulent acts.

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